India more than doubles gold import duty in bid to stem forex drain

India has more than doubled its import duty on gold and silver, moving swiftly to convert Prime Minister Narendra Modi’s public austerity appeal into enforceable trade policy as the country battles a widening current account deficit and a currency under sustained pressure from the Middle East conflict.

The Finance Ministry issued notifications on Tuesday raising the effective import tax on gold and silver to 15% from 6%, with immediate effect.

The new structure comprises a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess, and covers gold, silver, platinum, jewellery findings and precious metal-related industrial imports.

The move reverses a decision taken less than two years ago. In the 2024 Union Budget, the government had sharply cut gold import duties from 15% to 6% to make precious metals more affordable and curb smuggling. The restoration of the 15% rate signals that the balance of policy priorities has shifted sharply, with forex conservation now outweighing the previous focus on formalizing the bullion trade.

The hike comes two days after Modi urged citizens to avoid purchasing gold for one year, citing pressure on the country’s foreign exchange reserves from the Middle East conflict.

The government had at the time denied any imminent change in import duties. The swift reversal underlines the speed at which the external account deterioration has forced the administration’s hand.

The import problem

The duty hike addresses one of India’s most acute structural vulnerabilities. India’s gold imports surged by more than 24% to a record $71.98 billion in FY26, up from $58 billion in FY25. Gold accounted for nearly 9% of India’s total imports, which stood at $775 billion in 2025-26.

India’s trade deficit widened to $333.2 billion during FY26, while the current account deficit rose to $13.2 billion, or 1.3% of GDP, in the December quarter, up from $11.3 billion a year earlier, driven largely by the higher trade deficit.

India imports nearly all of its gold requirements and more than 85% of its crude oil needs. Spikes in oil and bullion imports can widen the current account deficit and increase pressure on the rupee.

The UAE dimension adds a further complication. Under the India-UAE Comprehensive Economic Partnership Agreement, which came into force in May 2022, India allowed gold imports from the UAE at tariffs one percentage point lower than normal duties through a tariff rate quota system.

When India cut normal gold import duty from 15% to 6% in the 2024 Budget, gold imported from Dubai effectively entered India at only 5% duty. The government has also increased the import duty on gold imported from the UAE under the fixed-quantity quota system, which earlier enjoyed concessional duty rates.

India’s gold bar imports from the UAE rose from $2.9 billion in 2022 to $6.7 billion in 2023 and further to $16.5 billion in 2025, with Dubai’s share in India’s gold imports increasing from 7.9% before the FTA to 28% in 2025.

The Middle East crisis has since disrupted that supply chain sharply. Gold imports from the UAE collapsed to $179.8 million in March 2026 from $2.78 billion in March 2025, a 93.5% year-on-year decline, as the US-Iran war ensnared the wider Middle East and freight costs rose. Indian importers rapidly diversified sourcing, with Switzerland’s share of India’s March gold imports rising from 10.2% to 17.1%, and Peru’s share surging from 5.8% to 32.8% over the same period.

The currency and reserves backdrop

India’s foreign exchange reserves declined by $7.79 billion to $690.69 billion during the week ended 1 May, highlighting the growing pressure on the external sector. The rupee hit a record low of 95.31 against the dollar on Monday as crude prices climbed above $103 a barrel.

Foreign Portfolio Investors have pulled more than ₹2 trillion from Indian equities in 2026, surpassing the ₹1.66 trillion withdrawn during the entirety of 2025. FPIs were net sellers in every month of 2026 except February.
Jewellery stocks, which had already taken a beating after Modi’s behavioral appeal on Sunday, face a more concrete threat now that the duty hike is in force. Titan, Senco Gold, and Kalyan Jewellers saw significant share price drops following Modi’s initial announcement. A 15% import duty raises input costs directly and is likely to dampen consumer demand, particularly for discretionary and investment-grade purchases.

In the national capital, gold prices are currently hovering around ₹1.5 lakh per 10 grams, having crossed the ₹1 lakh mark for the first time in April last year. The duty hike will add further cost pressure on an already elevated base.

The policy context

The hike is the sharpest single policy intervention in a sequence of escalating measures over the past week. It also addresses a concern flagged by trade analysts.

Think tank GTRI had urged the government to review its FTA policies, particularly tariff concessions on precious metals offered under the India-UAE trade deal, saying the arrangement had significantly contributed to the recent surge in gold imports.

Past experience with duty hikes offers a cautionary note: even steep increases in 2013 failed to materially curb gold demand, as investment now accounts for over 40% of gold consumption, supported by a 283% surge in ETF inflows in 2025.