India has significantly increased the import duty on gold, raising it from 6% to a substantial 15%. This move means that importing just one kilogram of gold, valued at approximately Rs 1.5 crore, will now incur an import duty exceeding Rs 22.5 lakh. The government's stated aim is to curb the purchase of the precious yellow metal, alleviate pressure on foreign exchange reserves, and support the Indian rupee.
However, this sharp increase carries a significant downside, according to Deepak Shenoy, CEO of Capitalmind Mutual Fund. In a recent post on X, Shenoy expressed concerns that the duty hike is highly likely to lead to a rise in gold smuggling incidents across the country. He drew parallels to a previous period when duties were similarly elevated, recalling numerous cases, including one involving an IPS officer's daughter, highlighting the widespread nature of such illicit activities.
Economic Context and Government Rationale
The decision to raise import duties comes amidst a backdrop of surging gold imports and a widening trade deficit. Data indicates that India's gold imports climbed over 24% to a record high of $71.98 billion in 2025-26, up from $58 billion in 2024-25. This substantial outflow of foreign exchange puts considerable strain on the nation's trade balance and overall economic stability.
The government hopes that by making legitimate gold imports more expensive, it can reduce demand, thereby easing pressure on the rupee and foreign exchange reserves. This aligns with earlier appeals from Prime Minister Narendra Modi for citizens to defer gold purchases to support the national currency.
Lessons from Past Duty Hikes
This is not the first time India has significantly raised gold import duties to manage economic pressures. A similar situation unfolded in 2012-13, when duties were gradually increased from 2% in January 2012 to 10% by August 2013. That period also saw a dramatic rise in gold smuggling, with seizures of illegal gold skyrocketing from Rs 243 crore to Rs 942 crore during April-June 2012 alone.
Shenoy's warning underscores the potential for history to repeat itself, suggesting that while the government's intentions are to stabilize the economy, the unintended consequence could be a boom in the illicit gold trade, posing new challenges for law enforcement and customs agencies.