Higher Gold Import Duty Sparks Concerns of Resurgent Smuggling

Customs Duty Hike on Gold Imports Sparks Concerns of Illicit Inflows

The Indian government's decision to raise customs duty on gold imports to 15 percent in June 2026 is likely to require a renewed enforcement push, as past episodes suggest that higher tariffs have often been followed by a surge in illicit inflows and related seizures.

The Centre reversed the steep reduction to 6 percent in July 2024, restoring duties to their highest level since 2022. This move comes at a time when India's appetite for gold remains robust, with imports touching a record $72 billion in the financial year 2026.

In a bid to conserve foreign exchange, Prime Minister Narendra Modi appealed to citizens on May 10 to defer gold purchases for a year. He also urged restraint in overseas travel and reduced consumption of oil and edible oils.

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Historical data suggests that higher tariffs tend to revive underground channels. When the government raised import duty from 10.75 percent to 15 percent in July 2022, seizures by enforcement agencies increased sharply. Gold seizures nearly doubled from 2,172 kg in FY22 to 4,343 kg in FY23, and climbed further to a record 4,972 kg in FY24, even as gold imports rebounded to $45.5 billion.

Earlier episodes tell a similar story. In FY16, when gold imports stood at $31.8 billion, authorities seized 2,972 kg of smuggled gold. Seizures fell to 1,520 kg in FY17, but rose again to 3,329 kg in FY18 and 4,292 kg in FY19, even before subsequent duty changes.

The link between tariffs and smuggling became particularly visible after the July 2024 duty reduction. Customs duty was cut from 15 percent to 6 percent, and seizures dropped sharply to 2,600 kg in FY25, nearly half the FY24 level. At the same time, gold imports surged to $58 billion, suggesting lower duties may have shifted purchases back into formal channels.

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The fiscal stakes are substantial. Revenue from gold imports rose to a record Rs 26,402 crore in FY25, up from Rs 17,747 crore in FY24, despite the lower duty rate.

With imports reaching $71.98 billion in FY26, India remains one of the world's largest gold consumers. Even a modest shift toward smuggled gold could erode customs revenues and complicate efforts to conserve foreign exchange.

Preventing a repeat of the post-2022 surge in illicit inflows will likely require customs and intelligence agencies to intensify surveillance at airports, ports, and land borders.

The policy challenge will be to balance the objective of curbing non-essential imports with the risk of reviving a parallel gold market that undermines both tax collection and external sector management.