Gold import duty at 15% raises smuggling fears for jewellers

What changed and why it matters

India has raised import duties on gold and silver to 15%, a move that industry bodies and bullion market participants say could hurt demand and revive grey-market activity. The All India Gems and Jewellery Council (GJC) said the higher duty will make business harder for jewellers, especially amid what it described as austerity measures. Market participants also linked the hike to the government’s effort to curb precious metal imports as the import bill rises.

The move comes against the backdrop of pressure on foreign exchange reserves and the rupee. Separate reports said the rupee hit an all-time low of 95.75 per dollar. With gold and silver largely imported, a higher tax can quickly flow into domestic prices and consumption decisions.

Government’s stated objective: curb imports and support the rupee

Reports said the Centre raised import duties on gold and silver from 6% to 15% and framed it as a step to curb inbound shipments. The aim, as described, is to narrow the trade deficit and support the rupee at a time of macro stress. The duty increase includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the effective import tax to 15%.

The duty hike was also reported days after Prime Minister Narendra Modi urged citizens to avoid buying gold for a year amid economic stress linked to the Iran war and pressure on reserves. In addition to the new customs structure, India had already tightened gold imports by levying a 3% integrated GST (IGST) on gold and silver imports, which led banks to temporarily halt imports for over a month.

Industry warning: grey market and smuggling risk

GJC chairman Rajesh Rokde told PTI that the industry fears the duty hike will encourage a grey market and smuggling, creating a parallel economy. He said business conditions would become difficult for the trade. Other industry voices echoed the concern that higher taxes increase the incentive to bring gold in illegally, particularly when prices are already elevated.

A Mumbai-based bullion dealer at a private bank, quoted in one report, said grey markets are likely to become active because the incentive to bring in gold illegally is high at current prices. The dealer said smugglers could make significant profits. Reports also noted that smuggling had eased after India cut tariffs in mid-2024, and officials warned higher taxes could reverse that trend.

How much costlier could gold get

Rokde said the overall import duty burden including Customs Duty, GST and Agricultural Cess could make gold costlier by around Rs 27,000 per 10 grams, compared with Rs 13,500 per 10 grams earlier. He added that the higher duty environment could persist for about a year. On consumer behaviour, he said buyers may shift to lighter-weight jewellery.

The duty hike is expected to dampen consumption, especially with gold and silver prices already elevated. Surendra Mehta, national secretary at the India Bullion and Jewellers Association, said the government raised duties to curb the current account deficit, but it could affect demand because prices were already high.

Imports had already slowed before the latest hike

Before the duty increase to 15%, India had imposed a 3% IGST on gold and silver imports, which reports said forced banks to temporarily halt imports for over a month. As a result, April imports fell to a near 30-year low. Bullion dealers were then expecting imports to decline further after the latest duty increase.

This context matters because a sharp drop in formal imports can tighten supply for organised channels, while also widening the arbitrage for illicit flows if the legal landed cost rises materially.

Listed jewellery stocks fall after the announcement

Jewellery stocks came under pressure after the duty hike. Kalyan Jewellers fell 5.8% intraday on the NSE, while Senco Gold dropped 3.4%. Shares of Sky Gold and Diamond, P N Gadgil, and Thangamayil Jewellery fell in the range of 3.6% to 4.5%, and Titan Company slipped 1.5%.

Analysts cited higher domestic gold prices as a likely headwind for jewellery demand, particularly for discretionary purchases during wedding and festive seasons. G Chokkalingam, founder and CEO of Equinomics Research, described the move as negative for jewellery stocks and said it came after two other shocks: a rally in global gold prices and the depreciation of the rupee.

Premiums and domestic price signals pointed to tighter conditions

Separate reporting said gold premiums in India surpassed $100 per ounce for the first time in over a decade, rising up to $112 an ounce above official domestic gold prices. The same report said silver premiums rose to $1 an ounce. It also said domestic gold reached a record of 158.339 rupees per 10 grams and silver surged to a record 335.521.

The report added that jewellery demand had declined while investment demand in coins, bars and exchange-traded funds had risen, with supply not keeping up. These indicators, combined with higher import taxes, can influence retail pricing and availability.

Key facts at a glance

Market impact: demand, compliance, and the parallel trade risk

For organised jewellers, the immediate issue is demand elasticity when prices rise further from already high levels. Industry representatives said consumers could respond by postponing purchases or shifting to lighter-weight jewellery. A second issue is compliance asymmetry: higher taxes can widen the price gap between legally imported bullion and smuggled supply, drawing activity into the grey market.

For investors, the stock reaction reflected concern that higher input costs and weaker volumes could pressure near-term sales momentum. Chokkalingam said investors should wait for another 10% correction in jewellery stocks before taking any investment decision and cautioned that the outlook may stay subdued until the rupee stabilises and global gold prices cool.

Conclusion

The import duty increase to 15% is a clear policy signal aimed at curbing precious metal imports and easing pressure on the rupee, but it has raised concerns across the gems and jewellery ecosystem. Industry bodies warned about weaker volumes and a higher risk of smuggling and parallel trade. Markets responded immediately, with several jewellery stocks falling sharply on the day of the announcement. The next key data points will be subsequent import trends and the evolution of domestic premiums after the duty hike.