India’s Gold Tariff Hike Sparks Smuggling Surge, Hitting Banks and Refiners

India's higher import duty on gold has widened the price difference between legal and illegal supplies, with bullion dealers indicating that smuggling activity has picked up again, as per a Reuters report.  

As per the report, illegal imports could cross 100 metric tonnes in 2026, reversing the decline seen after the previous duty cut. At current prices, that quantity is valued at about $14.35 billion. 

Duty Increase Changes Market Dynamics 

The import duty on gold was raised to 15% in May as part of plans to reduce demand, narrow the trade deficit, and support the rupee.  

Along with Goods and Services Tax, the total tax burden on legal imports now stands at 18.45%.  

Trade participants say this has created a sizeable price gap between official imports and supplies entering through unofficial channels. 

Banks and Refiners Feel the Impact 

The widening discount in the grey market has affected legal importers and refiners. Dealers said unofficial supplies are available at discounts of more than $200 per ounce, while banks are unable to offer comparable prices.  

Stocks imported before the duty revision are also being sold at lower rates, pushing domestic discounts on legal gold beyond $100 per ounce.  

The pressure has extended to refiners importing gold dore, a semi-pure alloy that attracts a duty 0.65% lower than refined gold.  

With refining margins around that level, wider market discounts have reduced the incentive to import and process dore. 

Import Trends and Earlier Data 

India imported 45.6 metric tonnes of gold in April, but market participants expect imports to have fallen sharply in May as overseas purchases slowed.  

Earlier, gold smuggling had declined from 156.1 metric tonnes in 2023 to 69.2 metric tonnes in 2024 and further to 20.4 metric tonnes in 2025 after import duties were lowered. 

The recent tariff revision has altered pricing in the domestic market, with legal importers, refiners and banks facing increased competition from lower-priced unofficial supplies. 

Read More: CEA Flags FY27 Growth Risks as RBI Cuts GDP Forecast To 6.6%! 

Conclusion  

The tariff revision has altered the economics of India's gold trade, influencing import patterns and refining activity. At the same time, concerns over rising smuggling have returned to the market. 

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