India's gold rush meets a speeding ticket, but industry fears smuggling and job loss
The Finance Ministry raised the total import duty on gold from approximately 9.18% to 18.45%, effective May 13, 2026, through a combination of BCD (from 5% to 10%), AIDC (from 1% to 5%), and IGST (which remains at 3.18% on the revised assessable value basis).
Silver and platinum import duties were raised commensurately, with platinum moving from 6.4% to 15.4%.
The duty hike, coming just two years after a significant cut in 2024, has alarmed industry stakeholders who warn it will simultaneously compress demand, raise consumer prices, and revive smuggling networks that had been suppressed by lower duties.
Mumbai-based bullion dealers flagged that at current gold price levels, the duty differential creates profit margins large enough to incentivise large-scale illegal imports.
The All India Gems and Jewellery Council (GJC), representing a Rs 5-lakh-crore industry, stated the hike would adversely affect demand at both the retail and export level, while simultaneously calling for the sector to demonstrate resilience.
Jewellery retailers anticipate a 10–15% reduction in sales volumes, though higher gold prices may partially offset this in value terms as consumers shift to lighter pieces.
Downstream concerns extend to employment: the gems and jewellery sector is a significant labour-intensive employer, and a sustained demand contraction could affect artisan-level livelihoods.
Smuggling Risk and the Tariff-Smuggling Nexus
A well-established empirical relationship exists between tariff rates and smuggling incentives. When the landed cost of legally imported gold substantially exceeds the price obtainable through informal channels (netting smuggling risk and logistics costs), rational actors shift to illegal supply chains. India's history bears this out: in 2012–13, when duty was raised to curb the CAD, documented smuggling surged — gold seizures by Customs and the Directorate of Revenue Intelligence (DRI) rose sharply. The 2024 duty cut to 6% was in part motivated by a desire to eliminate the smuggling premium and bring grey-market gold back into formal channels.
Key Details
- At a gold price of Rs 1,63,000 per 10 grams, a 9% duty differential equates to roughly Rs 14,670 per 10 grams in potential smuggling profit per unit.
- Smuggled gold typically enters via international airports in passenger baggage, sea routes, and the Nepal/Bangladesh land borders.
- Customs seizures are reported by DRI (Directorate of Revenue Intelligence) under the Ministry of Finance; significant increases in seizures typically lag duty hike announcements by 3–6 months.
- The government's counter-smuggling capacity relies on AI-based risk profiling at customs points, established under the ICEGATE modernisation programme.
Industry warnings echo the pre-2024 experience. The duty was cut in 2024 specifically to reduce the smuggling premium. Its restoration to 15% risks undoing those gains if not accompanied by stepped-up enforcement.
Customs Duty as a Macroeconomic Stabilisation Tool
Import duties in India serve dual purposes: revenue generation for the government and macroeconomic management (protecting the CAD and rupee). The Customs Act, 1962 empowers the government to modify duty rates through notifications, enabling rapid responses to external shocks without waiting for the annual Union Budget. This flexibility is exercised through Section 25 notifications (exemptions) and tariff amendments, which can be issued by the Ministry of Finance at any time.
Key Details
- The May 2026 hike was effected through a Customs (Amendment) Notification — not through a Budget provision — enabling same-day implementation.
- India's merchandise trade deficit widened sharply in FY26 due to both elevated gold import values and West Asia-linked energy costs.
- The rupee hit a record low of 95.63 per USD on the announcement date, underscoring the forex pressure context.
- The hike is explicitly framed as a "preventive" measure — a demand-management tool rather than a revenue measure.
The use of a mid-year Customs notification to manage the CAD is a precedent set in 2013 (three hikes in a single year) and now repeated in 2026. It underscores gold's unique position as a commodity that straddles consumer good, investment asset, and balance-of-payments variable.
Impact on the Gems and Jewellery Sector
India's gems and jewellery sector is one of the largest globally, contributing approximately 7% to the country's merchandise exports and employing over 4.64 million people, predominantly in skilled and semi-skilled artisan roles. The sector is export-oriented (chiefly to the UAE, USA, and Hong Kong) and is sensitive to both domestic gold prices (which affect working capital costs) and international demand conditions.
Key Details
- Higher import duties raise the cost of raw gold, squeezing margins for manufacturers who compete in price-sensitive export markets.
- Export competitiveness is partially mitigated by Duty Drawback (DBK) and IGST refund mechanisms, which allow exporters to reclaim duties paid on inputs.
- The UAE-India CEPA (Comprehensive Economic Partnership Agreement, effective May 2022) allows Indian jewellery to enter the UAE at 0% duty, subject to Rules of Origin requirements — this preferential access remains intact but is contingent on competitive sourcing costs.
- The sector has an ongoing Special Economic Zone (SEZ) cluster in Surat (diamonds) and Mumbai (gold jewellery) with separate duty treatment for inputs.
The duty hike compresses margins for jewellery exporters who cannot fully pass through input cost increases to price-sensitive overseas buyers, potentially eroding the gains from the India-UAE CEPA's preferential access.
- Effective total duty (pre-hike): ~9.18% (5% BCD + 1% AIDC + 3.18% IGST on assessable value)
- Effective total duty (post-hike): ~18.45% (10% BCD + 5% AIDC + 3.18% IGST on revised assessable value)
- Headline BCD + AIDC rate: 15% (up from 6%)
- Silver duty: Raised commensurately alongside gold
- Platinum duty: 15.4% (from 6.4%)
- Industry size: Rs 5 lakh crore (approx. USD 60 billion)
- Export share: Gems and jewellery account for ~7% of India's merchandise exports
- Employment: Over 4.64 million direct jobs in the sector
- Last duty cut: Union Budget 2024 (reduced to 6% to curb smuggling and support exports)
- Historical precedent: Duty at 15% during 2022; at 10.75% in 2013 during CAD crisis
- Gold price at hike: ~Rs 1,63,000 per 10 grams (24K)
- Silver price at hike: ~Rs 2,96,910 per kg
- DRI: Directorate of Revenue Intelligence — nodal agency for anti-smuggling operations under Ministry of Finance