The government on Wednesday announced a 15 per cent hike in import duties on gold and silver to ease pressure on the rupee and narrow the trade deficit. But economists and commodity analysts say the arithmetic behind the move is more complicated when the import bill is being driven more by soaring global prices than by a sharp rise in physical demand.
India’s gold imports rose nearly 29 per cent to about $69 billion in FY26 till February, according to commerce ministry trade data. Analysts say the increase does not necessarily mean India bought substantially more gold in volume terms. Much of the jump appears linked to record-high global bullion prices, which inflated the import bill even if physical purchases remained relatively stable.
Prices, not volumes, may be driving the import surge
At the core of the debate lies a simple equation: import bill equals price multiplied by quantity.
Piyush Doshi, operating partner at Foundation for Economic Development, said India’s gold import volumes have remained broadly steady despite sharp increases in global prices and rupee depreciation.
“Given the unique nature of gold as an investment rather than consumption product, the impact of duty changes is hard to model. In general, India’s gold imports in volumes have remained largely constant around 700-800 million tonnes since 2019 despite sharp rise in global prices and even sharper one in rupee,” said Doshi.
Data from the World Gold Council and the IMF commodity price database also shows global bullion prices have remained near historic highs over the past year, amplifying the value of imports even where physical demand growth remains moderate.
How much import compression is needed?
Doshi estimated that even under favourable conditions, the overall macro impact could remain limited.
“In terms of impact on trade deficit, it might help reduce the deficit by $10-15 bn in near term which is less about 5 per cent of India’s merchandise trade deficit and 10-12 per cent of overall deficit,” he said.
Anuj Gaur, director of IBBM Pvt Ltd and a cross-asset class trader, said India may need a steep fall in physical imports, potentially in the range of 20–25 per cent, to bring the import bill closer to last year’s levels if global prices remain elevated. “Since prices are elevated, even a moderate reduction in physical imports may not sufficiently offset the higher value of imports,” he said.
The arithmetic gets harder at current prices
Aditya Agarwala, chief investment officer at InvestValue Capital, cited an analysis of commerce ministry and RBI data showing that India’s gold import volumes fell 4.76 per cent in FY26 to 721 tonnes even as the import bill surged 24.1 per cent to nearly $72 billion because average import prices jumped more than 30 per cent year-on-year.
Agarwala’s decomposition showed that higher prices alone added roughly $17.6 billion to the import bill, while lower import volumes offset about $3.6 billion of the increase. In effect, India imported fewer tonnes of gold but still paid substantially more because global bullion prices surged.
“The government is attempting to compress an import bill that rose 24 per cent, but which physically required 4.76 per cent fewer tonnes,” Agarwala said.
He estimated that with gold trading near $4,700 an ounce, India would need to reduce import volumes by nearly 47 per cent, to roughly 384 tonnes, merely to bring the import bill back to FY25 levels.
Data compiled and visualised by Akshita Singh
Will higher duties cut demand or redirect it?
Analysts say India’s gold demand has historically proved resilient across both price and duty cycles because gold serves multiple purposes — as jewellery, savings, investment, and a hedge against uncertainty.
“A 15 per cent import duty may temporarily slow official gold imports, but historically such high duties do not significantly reduce underlying demand in India. Instead, they mainly alter the timing and channels of purchases,” Gaur said.
According to Gaur, consumers often respond to high prices and tariffs by postponing purchases, shifting towards lighter jewellery, relying more on recycled gold, or increasing purchases through unofficial channels rather than abandoning demand altogether.
Doshi also cautioned that part of the short-term reduction in official imports could come from increased smuggling activity rather than genuine demand destruction.
“In the short term, duty increase can indeed lead to a reduction in import volume, but a substantial part of it is because of the increased level of smuggling,” he said. “The impact on domestic demand is far more muted at under 3 per cent in the first year and practically nil in subsequent years as estimated by the World Gold Council.”
If domestic demand destruction remains limited to low single digits, the duty hike may not generate the sustained import compression needed to materially alter India’s trade balance.
Why gold demand behaves differently
Economists say gold behaves differently from many other imported commodities because periods of uncertainty can strengthen demand even as prices rise.
Ajit Mishra, senior vice-president, research at Religare Broking Limited, said India’s gold market has undergone a structural shift. While jewellery demand has weakened because of affordability pressures, investment demand has remained resilient.
“According to the World Gold Council, investment demand across bars, coins, ETFs, and digital gold surged 54 per cent year-on-year to 82 tonnes in Q1FY26, accounting for nearly 70 per cent of total demand,” Mishra said. “Weak equity market performance, geopolitical tensions, rupee depreciation, and safe-haven buying have encouraged investors to increasingly treat gold as a portfolio allocation tool rather than only a consumption-driven asset.”
Mishra also cautioned that the latest duty increase could widen the gap between domestic and international prices, reviving incentives for unofficial imports.
“Persistently high duties could gradually divert a larger share of demand toward unregulated markets, thereby limiting the long-term effectiveness of official import-control measures,” he said.
Why gold alone cannot fix the trade deficit
Analysts say gold compression may provide only limited relief compared with the much larger impact of crude oil prices on India’s external balance.
Gaur said gold import compression may offer only limited relief compared with larger import categories such as crude oil, electronics, and capital goods.
“Even a sharp correction in gold imports may only offer limited and temporary improvement in the overall trade balance unless accompanied by broader export growth and moderation in energy-related imports,” he said.
Some industry executives argue the longer-term solution lies not only in managing imports, but also in reducing India’s structural dependence on imported bullion itself.
Dr Hanuma Prasad Modali, managing director of Deccan Gold Mines Limited, said higher import duties may temporarily alter purchasing behaviour but are unlikely to materially change India’s long-term structural demand for gold.
“Accelerating responsible domestic exploration and mining, faster approvals, policy stability, and timely resolution of commercially viable projects can help gradually reduce long-term import dependence,” he said.
For policymakers, the challenge is that import compression works best when demand is discretionary and prices are stable. Gold today may be neither.