How India keeps falling back on gold curbs in times of crisis

The Union government has sharply increased the import duty on gold from 6 per cent to 15 per cent, including a 10 per cent basic customs duty and a 5 per cent Agriculture Infrastructure and Development Cess, in an attempt to curb the widening current account deficit (CAD). The move underlines a simple reality: after crude oil, gold remains India’s second-largest import item.

In reality, the total levy on gold imports is even higher. Along with the 15 per cent effective import duty, buyers also have to pay 3 per cent Integrated Goods and Services Tax (IGST), taking the overall tax incidence to 18.45 per cent from 9.18 per cent earlier.

The hike came at a time when India is grappling with multiple external pressures—the festering West Asia crisis, crude oil prices hovering above $100 a barrel, a record-low rupee and the country’s gold and silver import bill surging 26.7 per cent year on year to $102.5 billion in FY26.

The immediate impact was visible in the domestic market. On May 13, 24-carat gold prices jumped by Rs 13,910 in a single trading session to touch Rs 1,67,890 per 10 grams. While industry estimates suggest gold demand by volume could decline 10-15 per cent because of the higher prices and duties, the overall value of imports is expected to remain elevated.

The government has also tightened rules around imports. Duty-free gold imports under the Advance Authorisation Scheme have now been capped at 100 kg per application while first-time applicants will face mandatory physical inspections of manufacturing facilities—all measures aimed at plugging loopholes and curbing CEPA-related arbitrage through the UAE route.

This is not the first time India has raised curbs on gold imports to protect foreign exchange reserves and manage external vulnerabilities. Dr Renisha Chainani, head of research at Augmont, a trading platform for precious metals, explains the previous instances when the government tightened restrictions on gold imports, and how those measures impacted consumption, smuggling, investor behaviour and the broader economy.

2012: Duty structure shift—flat to ad valorem (2 per cent)

What was changed: Before 2012, India imposed a flat import duty of Rs 300 per 10 grams. The government revised this to a value-based (ad valorem) system, and imposed a 2 per cent duty, nearly doubling the burden at prevailing prices.

Impact: While the increase itself was modest, it marked the beginning of a broader policy shift towards using import duties as a macroeconomic tool. At that time, India was importing over 800 tonnes of gold annually and domestic MCX prices continued to closely track international COMEX prices. Smuggling remained contained because the duty was still relatively low. The move was largely seen as a fiscal alignment measure rather than an attempt to suppress demand, and it had little immediate impact on consumption or imports.

2013: Triple duty hike, 80:20 Scheme, RBI restrictions

What was changed: In 2013, as India confronted a record CAD, a weakening rupee and mounting forex outflows, the government raised gold import duties three times in a single year: from 4 per cent to 6 per cent in January, to 8 per cent in June, and further to 10 per cent in August. In July 2013, the Reserve Bank of India (RBI) also introduced the contentious 80:20 Scheme, under which at least 20 per cent of imported gold had to be compulsorily re-exported before fresh imports could be allowed. The central bank simultaneously tightened rules around consignment imports.

Impact: The restrictions had an immediate impact on official imports, which fell nearly 70 per cent in the second half of 2013 to around 90 tonnes per quarter, compared to an average of 225 tonnes in the previous two years. But the sharp supply shortfall also triggered a phenomenal rise in smuggling and gold premiums. Domestic gold prices soared.

On August 28, MCX gold touched Rs 35,074 per 10 grams—almost 25 per cent higher than the previous month—making it the biggest monthly rally in MCX gold’s history at the time. The spike was amplified by a sharp depreciation in the rupee, which fell 13 per cent against the dollar in August alone.

2019: Duty hiked from 10 per cent to 12.5 per cent

What was changed: Gold customs duty was raised from 10 per cent to 12.5 per cent to boost revenue and curb imports amidst a declining tax-to-GDP ratio, as part of a broader tariff hike across 75 products.

Impact: The impact on imports was immediate. In August 2019, India’s gold imports fell 73 per cent year on year to just 30 tonnes, the lowest level in three years, as domestic prices hit a then record high of Rs 39,770 per 10 grams. In value terms, imports in August dropped 62 per cent to $1.37 billion, the lowest since August 2016. Dealers began offering steep discounts, at times as high as $37 per ounce below official domestic prices.

At the same time, concerns around smuggling resurfaced. Industry experts pointed out that higher duties were once again making unofficial channels more attractive. Gold seizures by customs authorities rose 23 per cent year on year in the first quarter of FY20.

2022: Duty hiked from 10.75 per cent to 15 per cent (effective rate 18.45 per cent)

What was changed: On July 1, 2022, India raised gold import duty sharply again as pressure on the economy intensified following Russia’s invasion of Ukraine and soaring crude oil prices. The rupee weakened by 6 per cent against the dollar in the first half of 2022 and India’s CAD widened sharply.

India's gold import duty increased by 4.25 per cent, with consumers now paying 18.45 per cent tax on refined gold compared to 14.07 per cent previously. Also, the basic customs duty on refined gold bars was raised to 12.5 per cent while the Agriculture Infrastructure and Development Cess of 2.5 per cent remained unchanged.

Impact: The World Gold Council estimated that the duty hike would reduce short-term consumer demand by approximately 28 tonnes in 2022 amounting to 3 per cent of India's average annual demand over the previous decade. Import data validated this: India had imported 107 tonnes in May 2022; post-hike, imports remained muted through the third quarter of 2022 as the hike coincided with the seasonally weak monsoon period. However, as seen earlier, the grey market got a boost. Smuggling activity increased once again as the effective tax burden crossed 18 per cent, with enforcement agencies reporting higher seizures.

2024: Duty slashed from 15 per cent to 6 per cent

What was changed: The Union Budget 2024-25 had decreased total customs duty on gold from 15 per cent to 6 per cent; the sharpest reduction on record and the lowest since June 2013. Gold dor duty (unrefined gold) fell to 5.35 per cent from 14.35 per cent. These changes took effect from July 24, 2024.

Impact: The impact was immediate. Domestic gold prices fell 6 per cent month on month even though international prices remained elevated. The international prices remained 10 per cent higher on a year-to-date basis. Domestic gold, which had traded at a discount for five consecutive months, shifted to a premium almost immediately post-announcement.

Import volumes surged explosively. Gold imports shot up 221 per cent in August 2024 as festive season demand converged with duty-cut-driven restocking. Overall official bullion imports rose just 8 per cent in FY25, suggesting smuggling had significantly decreased. Central Board of Indirect Taxes and Customs chairman Sanjay Kumar Agarwal confirmed in February 2025 that gold smuggling reduced significantly after the July 2024 duty cut, corroborated by Directorate of Revenue Intelligence seizure data showing lower volumes.

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