Vincent Fernandes

India’s love for gold is facing a major test. Record prices, pressure on household budgets and a weak monsoon have pushed gold demand toward a six-year low. Yet, as formal purchases decline, unofficial gold imports have surged by more than 1,500%, rising from just 3 tonnes to 50 tonnes in the July-September quarter.

Why families are buying less jewellery, how higher import duties encourage smuggling and unofficial transactions, and why organised jewellers face an uneven playing field? With the government seeking to curb gold imports and households still relying on gold as savings, the video explores how India's gold economy is changing.

Gold has maintained its position as one of India's top three import categories by value for well over a decade, with annual bullion expenditure consistently ranging between $30 billion and $40 billion. Unlike petroleum or electronic components, gold serves a function that sits awkwardly between consumption and capital formation. Indian households hold an estimated 25,000 tonnes of above-ground gold accumulated across generations, making the country the world's largest private holder of the metal. This stock functions as collateral, inheritance, and emergency liquidity outside the formal banking system.

The commodity's contribution to India's current account deficit (CAD) makes it a perennial target for policymakers. Gold imports typically represent 5–7% of total merchandise imports and contribute meaningfully to a trade deficit that has repeatedly breached uncomfortable thresholds. When the CAD widens, gold becomes a politically visible target precisely because it lacks the industrial justification that shields petroleum imports from similar scrutiny. Furthermore, as a gold safe haven asset deeply embedded in household wealth strategies, its demand is particularly resistant to price-based policy interventions.

India's government raised the total import tariff on gold and silver to 15% effective May 13, 2026, reversing the July 2024 reduction that had brought duties down to 6%. The stated rationale centred on moderating bullion import volumes, narrowing the trade deficit, and providing support for the rupee through reduced dollar outflows.

The 2026 hike creates a 9% price gap between internationally sourced and officially imported gold. For organised networks operating at scale, this margin comfortably absorbs transportation, handling, and enforcement-evasion costs while generating substantial profit. India's extensive coastline and land borders with multiple countries create enforcement challenges that customs authorities have historically been unable to fully resolve.

This finding carries significant policy implications. If duty levels were genuinely constraining demand, one would expect a moderately negative correlation, perhaps -0.5 or lower, reflecting a meaningful inverse relationship. The -0.17 figure instead indicates that gold demand in India operates according to a different set of drivers entirely. In addition, the broader gold and inflation hedge dynamic at play globally means Indian consumers are responding to macroeconomic pressures that a border tax simply cannot neutralise.

Official quarterly imports have remained within the 175 to 236 tonne range across duty regimes spanning the full 6–15% spectrum, with the exception of the 2020 COVID disruption. This consistency is remarkable given the variation in tariff levels applied over this period.

The World Gold Council's assessment is direct on this point: broader demand conditions play a substantially greater role than duty changes in determining import volumes. The primary structural drivers of Indian gold demand include:

Rupee depreciation trajectory – As the domestic currency loses purchasing power, gold's appeal as a preservation asset intensifies. Paradoxically, the macroeconomic conditions that motivate duty increases also increase the motivations for buying gold.

Agricultural income cycles – Rural India represents a substantial portion of gold demand, and strong agricultural seasons translate directly into jewellery purchases. The monsoon season outcome has historically been a more reliable predictor of second-half demand than tariff levels.

Wedding and festival calendars – Dhanteras, Akshaya Tritiya, and the main wedding season between October and December drive purchasing behaviour that is essentially calendar-fixed and price-inelastic within a wide band.

Household wealth dynamics – As Indian middle-class wealth expands, the proportion allocated to gold as a savings vehicle has remained relatively stable, meaning absolute demand tracks income growth more than price sensitivity.

The most damaging unintended consequence of India's gold import duty increases is their consistent tendency to redirect demand from official channels to informal ones. World Gold Council analysis covering 2013–2026 establishes that virtually every duty increase during this period was followed by an expansion in unofficial gold inflows, while duty reductions coincided with sharp contractions in gray market activity.