The recent increase in customs duty on gold imports to 15 per cent could lead to a sharp rise in domestic gold prices and encourage illegal trade through grey market channels, according to a new report by SBI Research.
The report warned that higher import duties historically create a gap between international and domestic gold prices, making smuggling and unofficial supply chains more profitable. SBI Research noted that the widening spread between offshore and onshore gold prices creates opportunities for arbitrage, which may divert physical gold supplies into grey markets.
The Centre recently raised import tariffs on gold and silver from 6 per cent to 15 per cent in an attempt to curb imports, reduce pressure on foreign exchange reserves and support the rupee. The revised duty structure includes a 10 per cent basic customs duty along with a 5 per cent Agriculture Infrastructure and Development Cess.
Following the announcement, domestic gold prices witnessed a massive surge. Analysts said the increase in import costs immediately pushed bullion prices sharply higher in Indian markets. Gold futures on MCX reportedly jumped over 7 per cent after the duty hike.
SBI Research also highlighted concerns over India’s current account deficit (CAD), saying rising gold imports continue to impact the country’s external balance. However, the report clarified that gold imports alone are not always the sole driver of CAD trends. While import volumes have declined over the last two years, the overall import bill has increased significantly because of soaring global gold prices.
According to the report, India’s gold import bill rose from around USD 57.9 billion in FY25 to nearly USD 72.4 billion in FY26 despite falling import volumes. This suggests that higher prices, rather than stronger demand, are driving the rise in import value.
Market experts have also cautioned that the higher duties may revive gold smuggling networks that had reduced after import taxes were lowered in 2024. Reuters reported that dealer discounts in India crossed a record USD 200 per ounce after the tariff hike, reflecting weak retail demand and heavy profit-booking in the market.
