Gold import duty at 15%: CAD risks amid oil shock 2026

Why gold and oil are back at the centre of policy

India’s decision to raise import duty on gold and silver to an effective 15% has renewed attention on how policymakers may respond if crude oil stays elevated and geopolitical risks persist. Kotak Institutional Equities said India may eventually need to consider tougher interventions, including possible tax changes linked to gold and foreign investments, if external pressures continue to strain the economy. The brokerage also pointed to the risk that a prolonged disruption in global oil and gas supplies could worsen India’s macroeconomic position and force policymakers to look beyond conventional responses. The report interpreted the Prime Minister’s recent public calls for reduced fuel usage, lower gold imports and moderation in overseas travel as a signal of rising caution inside policymaking circles.

What Kotak Institutional Equities is flagging

Kotak’s note focused on the current account deficit (CAD) and balance of payments (BoP) risks that can build when oil prices rise and the rupee comes under pressure. It argued that if current account pressures intensify, the government could be pushed toward stronger measures involving pricing and taxation. The brokerage said India could have limited options to manage immediate CAD and BoP pressures without taking “harsh” measures. While it did not list specific proposals, it identified taxation as a key policy lever that could be used if conditions worsen.

What changed in import duties on precious metals

The Centre has increased import duty on gold and silver from 6% to 15%, effective May 13, 2026, according to government sources and official reporting cited in the provided material. Platinum duty has been raised from 6.4% to 15.4%. The hike also covers related imports such as dore, coins and findings. Another detail cited is that the 15% effective rate on gold and silver includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC). Government sources described the move as a calibrated, preventive intervention to moderate non-essential imports and conserve foreign exchange for essential needs.

The official rationale: ringfence forex for essential imports

Government sources said foreign exchange is being prioritised for essential imports such as crude oil, fertilisers, industrial raw materials, defence equipment, capital goods and critical technologies. In that framing, precious metals are seen as largely consumption and investment driven imports that can drain foreign currency reserves in a period of external stress. Officials also stressed that the duty hike is not intended to ban imports or remove consumer choice. Instead, it is positioned as a price-based disincentive designed to reduce avoidable imports without resorting to quantitative restrictions.

How big is gold’s role in the import bill

Gold and silver account for roughly 10% to 11% of India’s merchandise imports, according to experts cited in the provided text, making them a meaningful contributor to CAD pressures after crude oil. India is also described as the world’s second-largest consumer of precious metals, which increases the macro sensitivity to changes in bullion demand. Policymakers appear to be targeting non-essential imports as one channel to protect external balances without turning immediately to politically sensitive fuel price changes.

The key risk flagged by economists: smuggling and formal sector pain

Economists and market experts cautioned that higher import duties alone may not address India’s structural dependence on gold. One widely cited concern is the historical link between elevated taxes and smuggling, particularly when domestic prices rise above international prices and arbitrage opportunities widen. Experts also warned that higher duties can disproportionately hurt compliant businesses such as organised jewellers and formal retailers, by raising procurement costs and increasing pressure from grey-market operators. Piyush Doshi, operating partner at Foundation for Economic Development, said the impact of duty hikes on real domestic demand is often overstated, and put the first-year demand impact at under 3% with “practically nil” effect in subsequent years. Aditi Nayar, chief economist at Icra, similarly noted that while higher duties may modestly reduce imports, they are unlikely to fully offset broader external pressures, particularly from oil.

Oil shock signals are getting louder

The macro backdrop remains dominated by crude oil. India imports nearly 85% of its crude oil requirements, leaving the economy vulnerable to supply disruptions and price spikes. In the provided material, one report cited Brent crude trading near $106-$107 per barrel, up over 62% from a year ago, while another reference noted crude nearing $15 a barrel with potential to reach $10-$100. The combination of elevated prices and disruptions around shipping routes in West Asia, including references to tensions near the Strait of Hormuz, has sharpened focus on the external account and imported inflation.

Fuel prices, RBI signals, and what the IMF said

Alongside the gold duty hike, concern has grown that petrol and diesel prices could face upward pressure if the West Asia crisis continues. RBI Governor Sanjay Malhotra was quoted saying that if the situation continues for a longer period, it may be “just a matter of time” before the government passes on some of the price increases. The IMF was also cited as backing the idea of passing on higher crude oil prices to consumers, while saying India still has room to manage the current energy shock. An economist quoted in the material, Dr Manoranjan Sharma of Infomerics Ratings, said India’s approach of shielding consumers cannot continue indefinitely and suggested that if fuel prices rise, the initial increase could be in the range of Rs 2 to Rs 5 per litre depending on crude prices and tax adjustments.

Foreign capital: tax changes as a counterweight

Kotak Institutional Equities also raised the possibility of tax measures aimed at encouraging foreign capital inflows during periods of external stress. Specifically, it suggested policymakers could consider lowering capital gains taxes on equities for foreign investors to improve overseas participation in Indian markets. The brokerage said such steps could support capital inflows and strengthen the BoP when external conditions are challenging, while clarifying these were analytical possibilities and not measures currently under policy discussion.

Key facts at a glance

Why this matters for markets and policy

The duty hike shows policymakers using taxation to manage external-sector pressure by targeting discretionary imports. But experts cited in the provided material argue that durable CAD relief is unlikely without deeper structural shifts such as higher recycling, monetisation and stronger financial alternatives for household savings. If crude remains high for an extended period, the pressure could shift from import control to politically harder decisions on retail fuel pricing, fiscal costs, or both. Kotak’s framing adds another layer: if the external account comes under sustained strain, policymakers may also explore tax settings that improve foreign portfolio participation to bolster the BoP.

Conclusion

India’s move to raise gold and silver import duty back to 15% reflects a defensive response to external risks driven by oil prices, geopolitics and currency pressure. Kotak Institutional Equities has flagged that if these pressures persist, policy could broaden toward further taxation measures affecting gold demand and potentially the tax treatment of foreign investors. For now, the government has described the duty hike as calibrated and non-prohibitory, while economists continue to debate how much it can reduce real demand without pushing trade into informal channels. The next signals for markets are likely to come from crude price trends, official messaging on fuel pricing, and any further steps tied to managing CAD and foreign exchange outflows.