Explainer: How govt hopes to curb demand for gold with heftier duties

The Indian government has restricted Advance Authorisation gold imports to 100 kg per license and hiked the effective customs duty. While intended to bridge the trade deficit, these measures present liquidity and compliance hurdles for jewellery exporters.

May 16, 2026 00:24 IST

India Cracks Down on Bullion: 100 kg Advance Authorisation Cap and 15% Tariff Hike to Reshape Gold Imports

The government has imposed a limit of 100 kg on gold imports under the Advance Authorisation scheme, while hiking tariffs on precious metals to 15%. Imports may decline in the short run, but overall reduction in demand for gold will depend to a large extent on attractive investment alternatives, writes Ajay Sahai

l What led to the customs duty hike?

THE INCREASE IN customs duty on gold imports is aimed at reducing non-essential imports, controlling the current account deficit, and conserving foreign exchange. India imports almost all of its gold requirements, which leads to significant forex outflow. Higher duty also helps improve tax collections.

Earlier, gold imports attracted 5% Basic Customs Duty (BCD), 1% Agriculture Infrastructure Development Cess (AIDC) and 3% IGST. Since IGST is applied after adding BCD and AIDC to the assessable value, the effective duty impact was 9.18%. The revised structure is 10% BCD, 5% AIDC and 3% IGST. This takes the effective duty impact to 18.45%.So, the net increase in duty burden is 9.27%.

l Will this reduce gold demand?

HIGHER DUTIES MAY temporarily reduce imports and speculative buying, but may not fundamentally change long-term gold demand. Elevated duties often widen the gap between domestic and international gold prices, which can encourage imports through unofficial channels. So, while official imports may decline in the short run, the overall reduction in physical demand will depend on broader financial inclusion, attractive investment alternatives, and stronger measures to encourage recycling of domestic gold stocks.

l Why has gold imports under Advance Authorisation been restricted?

THE RESTRICTIONS UNDER the Advance Authorisation scheme are meant to prevent alleged misuse of duty-free gold imports and ensure the facility is used strictly for genuine export production.

There have been some instances where imported gold allegedly entered domestic circulation instead of being fully used for export-oriented manufacturing. By tightening norms, the government aims to improve monitoring, increase accountability, and protect revenue.

l How will these changes impact jewellery exports?

JEWELLERY EXPORTERS MAY face higher working capital requirements and increased compliance obligations. India is a major global jewellery manufacturing hub, and uninterrupted access to competitively priced gold is critical for export competitiveness. We have to ensure that the new procedure does not affect delivery schedules or reduce the ability to compete with countries like Thailand, Turkey, and the United Arab Emirates (UAE). On the positive side, better regulation can improve sector credibility and enhance traceability.

l What broader economic objectives do these reforms aim for?

THESE REFORMS ARE part of a larger strategy to improve external sector stability, conserve foreign exchange reserves, formalise trade, and reduce pressure on the current account deficit.

Gold imports significantly affect India’s trade deficit. India imported gold worth about $72 billion in FY 2025–26, accounting for 9.3% of total imports. The government aims to reduce dependence on imported bullion while encouraging value addition and exports. It also seeks to promote recycling of idle domestic gold and encourage financial products as alternatives to physical gold investment.These reforms therefore combine macroeconomic, fiscal, and regulatory objectives.