India’s gold tariff hike fuels smuggling revival, dealers say

India’s higher gold tariff is backfiring. The jump to a 15% import duty has revived smuggling, widened the gap between legal and grey-market prices, and forced banks and refiners to pull back overseas buying as illegal suppliers undercut them by avoiding taxes that now total 18.45% with goods and services tax.

In Mumbai, bullion dealers say the grey-market discount has moved beyond $200 an ounce, more than 4%, while legal importers cannot get close to those prices. Domestic discounts on compliant gold have also widened to more than $100 an ounce as stocks imported before the May duty increase are sold down at steep markdowns, a sign that the formal market is still digesting the policy shock.

The tariff move was meant to do the opposite: cool demand, narrow the trade deficit and ease pressure on the rupee. Instead, the incentive structure has shifted fast enough to revive a shadow trade that had been fading after India cut gold and silver import duty from 15% to 6% in July 2024. That earlier cut was the sharpest reduction on record and took duties to the lowest level since June 2013; now the pendulum has swung back just as sharply in the other direction.

The World Gold Council said the new rate was a 9 percentage point increase from 6% and the steepest hike on record. It also said past trends suggest higher duties increase unofficial inflows and that domestic prices remained at a significant discount to landed prices even after the increase. India’s gold demand was already strong, rising 10% year on year to 151 tons in the first quarter of 2026, while investment demand jumped 54% to 82 tons. The council also expects 2026 demand to moderate, with jewellery and bar-and-coin demand projected to fall by 50 to 60 tons, or about 10% year on year.

If smuggling reaches 100 tons this year, dealers say the metal would be worth about $14.35 billion at current prices, implying roughly $2.65 billion in lost tariffs and sales tax for the government. India customs and revenue-intelligence authorities have already intensified vigilance at airports, seaports and land borders, but the larger damage may land elsewhere: on compliant banks, refiners and importers that now must compete against a market where tax avoidance has become the cheapest business model.