A hike in gold import duties is projected to trim annual demand by nearly 60 tonnes, potentially saving the exchequer $2.5 billion (approximately ₹24,000 crore) in import bills. While the move is designed to narrow the Current Account Deficit (CAD), analysts warn that a potential surge in smuggling could dilute these fiscal gains.
With the hike, custom duty is back to its highest level in 14 years. Between 2012 and 2026, the lowest rate was 2 per cent. With effect from May 13, duty on gold and silver has been hiked to 15 per cent. India nearly imports 700-800 tones of gold annually.
“A moderation in import volumes due to higher duties could help narrow the merchandise trade deficit, thereby easing pressure on the CAD and supporting forex reserve conservation. However, the impact may be limited to some extent, as gold demand in India remains relatively inelastic due to strong cultural and traditional preferences,” said Rajani Sinha, Chief Economist with CareEdge.
According to estimates by the World Gold Council, every 1 per cent increase in import duty can reduce consumer demand by around 0.8 per cent, or nearly 6 tonnes. Accordingly, “the cumulative 9 per cent hike in duty could potentially reduce gold demand by nearly 50-60 tonnes, translating into lower imports worth approximately $6-9 billion at current international prices,” she said, adding that the favourable impact on the CAD may be partially offset if elevated duties encourage unofficial gold inflows through smuggling channels.
Debopam Chaudhuri, Chief Economist at Piramal Group, said: “In our assessment, every 1 per cent increase in retail gold prices can potentially reduce year-on-year growth in gold imports by at least 40 basis points. Accordingly, if the entire tariff hike is passed on to end consumers, India’s gold imports could decline by approximately 4 per cent, translating into potential savings of nearly $2.5 billion in FY27, assuming international gold prices remain broadly in line with FY26 levels,” he said.
However, some economists are not so optimistic about reduction in current import bill. “We do not think the current gold import duty hike will significantly affect the current account deficit,” said Aastha Gudwani, India Chief Economist at Barclays. According to her, there is an inverse relationship between international gold prices and India‘s imports. Gold import demand was already weak and trending lower in March with 35 per cent reduction.
Though February did see import demand rising by 120 per cent (volume growth), but on a 12-month rolling basis, volumes were down since August 2025 as the surge in gold prices began to pinch. “While the duty hike may indeed have a dampening effect on volume demand (based on historical experience) amid elevated international gold prices, we expect the gold import bill to rise further in FY27 ($15 billion versus FY26), offsetting the volume decline,” said Gudwani.
Rise in prices of gold and silver on account of duty hike is also likely to impact the headline inflation. It is expected that retail inflation rate might see a rise of 5-6 basis points in May, while the full impact will be seen in June, where the increase could be up to 10 bps.