NEW DELHI: Two years ago the government cut India’s gold import duty from 15% to 6% to boost the gems and jewellery industry and reduce smuggling. That decision triggered a 24% surge in gold imports to a record $71.98 billion in FY2025-26. On May 13 2026 the Finance Ministry reversed it entirely.
Through Customs Notification No. 16/2026-Customs the Finance Ministry hiked the social welfare surcharge and the agriculture infrastructure and development cess on gold and silver effective midnight May 13 raising the overall customs duty to 15% from 6%. The previous structure comprised 5% basic customs duty plus 1% AIDC totalling 6%. The new structure breaks down as 10% basic customs duty plus 5% AIDC. Gold and silver jewellery components now attract 5% duty. Platinum components attract 5.4%. A senior Finance Ministry official cited by Reuters stated the move aimed to curb non-essential imports to stabilise the current account.
The decision came three days after Prime Minister Modi’s public appeal to avoid gold purchases for a year and one day after the rupee hit a record low of ₹95.63 to the dollar.
The Numbers Behind the Decision
Three simultaneous pressures forced the government’s hand on May 13.
First the rupee crisis the Indian rupee hit ₹95.63 against the dollar on May 12 a record low making it one of Asia’s worst-performing currencies. Chief Economic Advisor V. Anantha Nageswaran framed the situation directly on May 11. He said the ongoing West Asia crisis is a “live balance of payments stress test” with direct consequences for inflation, the current account and the exchange rate.
Second the oil shock. India’s petroleum import bill for FY2025-26 reached $212.4 billion up from $178 billion the previous year as the West Asia conflict pushed crude oil prices to approximately $88.40 per barrel according to PPAC data. India’s total merchandise trade deficit for FY2025-26 stood at $333.19 billion according to DGCI&S figures.
Third the gold surge. Gold accounted for nearly 9% of India’s total imports in FY2025-26. India’s forex reserves stood at $690.69 billion for the week ended May 1 2026 down $7.79 billion from the prior week. With oil and gold together consuming a growing share of the country’s forex outflow, the current account deficit for April to December 2025 reached $30.1 billion. Analysts estimate the full FY2025-26 CAD at approximately $42 billion.
The Full Story of India’s Gold Import Surge
The five-year gold import trajectory tells the complete story of how India arrived at this moment. In FY2021-22 India imported $46.1 billion worth of gold. In FY2022-23 imports fell to $35 billion. In FY2023-24 they recovered to $45.5 billion. In FY2024-25 they rose to $58 billion. And in FY2025-26 they hit a record $71.98 billion a 24% jump in value even as volumes dipped 4.76% to 721.03 tonnes. The price of gold rose from $76,617 per kg in FY25 to $99,825 per kg in FY26. India was paying record prices for slightly less gold and the forex outflow kept growing regardless.
Switzerland remained the largest supplier with around 40% share followed by the UAE at about 16% and South Africa at nearly 10%.
The Irony of the Policy Reversal
The 2024-25 Budget cut was made with clear intent. The government reduced gold import duty to 6% specifically to boost the domestic gems and jewellery industry, bring down retail prices and reduce smuggling incentives. All three goals were achieved in the short term. Retail prices fell, jewellery exports grew and smuggling activity eased after tariffs came down.
What the cut also did was remove the price disincentive to import. With gold prices rising globally and duty at a historic low, imports surged to record levels. The forex outflow from gold alone hit $71.98 billion larger than India’s defence budget. The West Asia crisis then compounded this pressure through elevated oil prices and a weakening rupee.
India has now completed a full policy cycle in under three years cut duty, watched imports surge, raised duty again. India had in 2022 raised gold import tax to 15% to check the current account deficit amid a falling rupee due to the Russia-Ukraine war. The duty was subsequently cut back to 6% in the 2024-25 Budget. The 2022 hike came into effect on July 1 of that year. In the following quarter imports fell 12% in volume a meaningful short term suppression. Whether the 2026 hike produces a similar outcome will depend on how consumers and the grey market respond.
What It Means for Prices and Markets
The retail price impact was immediate. Gold prices in Delhi rose ₹1,500 or nearly 1% to ₹1,56,800 per 10 grams on May 13. Silver surged ₹12,000 or 4.53% to ₹2,77,000 per kg. International spot gold was at $2,692.64 per ounce on the same day.
Jewellery stocks bore the brunt. Kalyan Jewellers India slipped 5.87% to ₹340.55 hitting a 52-week low, Thangamayil Jewellery fell nearly 3% to ₹3,562.20, Senco Gold edged 0.56% lower to ₹310.70 while Titan Company was the most resilient falling just 0.12% to ₹4,053.80. All figures are closing prices for May 13 2026.
Analysts note that large organised jewellers may eventually gain market share from smaller unorganised players who are less equipped to manage inventory costs and price volatility. Gold financing companies and NBFCs may also benefit as rising gold prices increase collateral values.
The Industry’s Split Reaction
The trade response was immediate and divided. Surendra Mehta, National Secretary at the India Bullion and Jewellers Association, said “As expected the government has raised duties to curb the current account deficit. However this could affect demand as gold and silver prices were already elevated.”
The more pointed concern from the industry is smuggling. Following the 2022 duty hike to 15% the Directorate of Revenue Intelligence reported a 35% increase in gold seizures at international airports within six months a direct correlation between higher duty levels and grey market activity. The government cut duty precisely to address this in 2024 and the risk has now returned.
P. Chidambaram of the Indian National Congress offered the opposition’s position directly stating that the duty hike is a knee-jerk reaction to a crisis of the government’s own making and that managing the current account deficit by taxing the common man’s savings is a sign of economic desperation.
The Schemes That Have Not Worked at Scale
The duty hike addresses the symptom the structural problem remains untouched. The Gold Monetisation Scheme, launched in 2015 to channel India’s estimated 35,000 tonnes of idle household gold into the formal economy, has mobilised a cumulative total of just 32 tonnes since launch. The Sovereign Gold Bond scheme designed to channel investment demand into paper gold and reduce physical import pressure has paused new issues for FY2026-27 due to high redemption costs. Outstanding SGBs stand at approximately ₹82,000 crore.
Neither scheme has operated at the scale needed to meaningfully reduce India’s structural dependence on gold imports.
What Comes Next
Aditi Nayar, Chief Economist at ICRA, stated on May 12 that while the duty hike helps the balance of payments, the rupee remains vulnerable to elevated oil prices and is expected to range between ₹94.80 and ₹96.00 in the near term.
The West Asia crisis that triggered this decision will eventually stabilise. When it does the government will face the same question it faced after 2022 whether to hold the 15% duty or cut it again to support the jewellery industry. In 2024 it cutted and the result was a record import bill. The policy cycle is now complete for the second time. Whether India learns from it this time or whether the structural dependence on gold imports simply reasserts itself when the crisis passes will determine whether a third cycle follows.
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