The government’s decision to raise the import duty on gold and silver to 15% from 6% is a necessary macroeconomic intervention at a time when India’s external balance is coming under visible stress. Gold imports surged 24% to a record $71.98 billion in FY26, helping widen the merchandise trade deficit to $333.2 billion. With the West Asia crisis threatening oil prices, the rupee under pressure, and the current account deficit again emerging as a policy concern, the Centre had little choice but to act. Gold may carry cultural and emotional value, but economically it remains a large discretionary forex outflow, accounting for 9-10% of India’s total import bill.
Prime Minister Narendra Modi’s public appeal to postpone gold purchases made clear that the government views the issue as part of a wider economic stabilisation effort rather than a narrow tax measure. In such conditions, allowing bullion imports to rise unchecked would have been fiscally reckless. The duty increase is therefore a textbook response to a macro-problem, much like the duty hikes imposed during earlier external shocks. It’s obvious that it might help on the margins, but is unlikely to alter the situation much.
Savings Paradox
The larger problem of gold imports, however, is deeper than duties. India’s dependence on imported gold reflects weaknesses in the country’s financial architecture itself. Import volumes actually fell in FY26 even as the import bill surged because global prices rose sharply. Yet households continue to accumulate gold because alternatives remain inadequate. Indians hold an estimated 25,000 tonnes of gold, treating it as a parallel savings system rather than merely jewellery.
Families buy gold because it is liquid, culturally trusted, and perceived as safer than many financial assets during periods of inflation or uncertainty. Real deposit returns often struggle to beat inflation, retail participation in bond markets remains shallow, and sovereign gold bonds still lack sufficient liquidity and visibility. So the larger reality is that gold demand is also a vote of limited confidence in India’s financial savings ecosystem.
Arbitrage and Enforcement
The government must also recognise that tariff policy alone creates distortions that traders quickly exploit. The India-UAE Comprehensive Economic Partnership Agreement has opened major low-duty channels for precious metal imports, while platinum alloys, gold compounds, and tariff-free jewellery routes have increasingly become mechanisms for arbitrage. Gold imported through Dubai often originates elsewhere and is minimally processed before entering India under concessional arrangements.
Similar loopholes have emerged through Japan and Association of Southeast Asian Nations-linked trade routes. At the same time, high duties inevitably revive smuggling. History shows that whenever the price gap between legal and illegal imports widens excessively, underground supply chains quickly adapt. A 15% duty without strong enforcement simply shifts part of the market underground while penalising compliant importers and organised jewellers. India therefore needs tighter monitoring of bullion flows, digital tracking systems, stricter hallmarking norms, and a serious review of trade agreements that inadvertently incentivise precious metal imports.
The duty hike will slow official imports and cool near-term demand, which is precisely what policymakers intend. But tariffs are emergency brakes, not structural solutions. The long-term answer lies in building a more credible financial ecosystem where households feel less compelled to park wealth in imported bullion. Sovereign gold bonds need genuine market liquidity, gold monetisation schemes require redesign and trust, and inflation-indexed savings products deserve far greater policy attention. Financial deepening, not repeated tariff cycles, is the real solution. The government is right to act decisively now because the macroeconomic risks are real. But the mistake would be to believe that tariffs alone can solve a problem rooted in financial insecurity, weak investment alternatives, and structural dependence on physical assets.