India has significantly increased gold import duties from 6% to 15%, creating a potential surge in gold imports from Dubai through the free trade agreement route. According to the Global Trade Research Initiative (GTRI), this duty hike sharply changes the economics of precious metal imports routed through the United Arab Emirates under the India-UAE Comprehensive Economic Partnership Agreement (CEPA). The revised structure doubles the Basic Customs Duty from 5% to 10% and raises the Agriculture Infrastructure and Development Cess five-fold from 1% to 5%. The tariff increase comes as India faces a record $71.98 billion import bill for gold in 2025-26, with import volumes falling only 4.76% to 721.03 tonnes as elevated global prices pushed up the overall import bill. The duty hike aims to curb domestic demand amid skyrocketing import costs and strain on the current account from rising crude oil and fertiliser prices due to the Iran conflict. Authorities had already introduced a 3% integrated goods and services tax on gold and silver imports weeks earlier, temporarily causing banks to halt imports for more than a month. Gold imports in April subsequently dropped to nearly a 30-year low.
Following the sharp hike in customs duty on gold to 15%, Indian revenue intelligence and customs authorities are intensifying surveillance to curb smuggling activities. Officials are focusing on land, coastal, and air routes as syndicates may exploit price differences, with past seizures highlighting persistent challenges in controlling illegal gold trade. "The idea is to disrupt the supply chain and intercept gold smuggling syndicate and cross border cartels. Intelligence driven surveillance and enforcement will be key in tackling the challenge of gold smuggling," an official told PTI. Effective May 13, import duty on gold and silver has been increased from 6% to 15% and that on platinum has been raised from 6.4% to 15.4%. Although import duty does not have a direct co-relation with smuggling, it is perceived that higher duties lead to spurt in grey market activity. Gold's cultural, economic and social significance, along with high liquidity and value, has fuelled smuggling over the years.
Under the CEPA framework, India had allowed gold imports from Dubai at tariffs one percentage point below the normal Most-Favoured-Nation (MFN) rate through a Tariff Rate Quota (TRQ) system. The quota began at 120 tonnes annually in 2022 and is set to rise to 200 tonnes by 2027, nearly one-fourth of India's yearly gold imports. With the new MFN tariff structure taking effective duties to 15%, gold imported under the UAE quota would enter at 14%, creating a widening tariff gap that could encourage greater routing of global bullion through Dubai, even though the UAE is not a miner of gold or silver. Industry executives estimate that gold and jewellery in the UAE and wider GCC could now be around 10-12% cheaper than in India once the revised duty structure is fully reflected in Indian retail prices. Surendra Mehta, national secretary at the India Bullion and Jewellers Association, said the duty increase could affect demand since gold and silver prices were already elevated before the hike. Bullion dealers told Reuters that the latest tariff increase is likely to trigger another decline in imports.
Gold smuggling is mostly concentrated in the states of Maharashtra, Tamil Nadu, Gujarat and West Bengal, with officials noting that smuggling via land route remained a major challenge particularly along India's eastern and north eastern borders with syndicates exploiting the porous and rugged terrain adjoining Myanmar, Bangladesh, China and Nepal. Assam, Manipur, Mizoram continued to be key routes among the northeastern states. In the 2024-25 fiscal, land accounted for the majority of DRI's gold smuggling cases at 55.90%, followed by air at 43.70% and sea at 0.50%. As per the latest data available, in FY 2024-25, a total of 2,600 kg gold was seized by the officers of Central Board of Indirect Taxes and Customs (CBIC), and 533 persons were arrested. DRI and Customs officers have seized 260 kg gold valued at over ₹254 crore between April-October 2025 at airports and seaports alone.
While the higher duty is intended to curb India's swelling import bill and conserve foreign exchange reserves, it has also widened the price gap between India and Gulf markets, creating fresh incentives for NRIs and tourists to purchase jewellery in the UAE. However, record gold prices have already reduced affordability for many middle-income consumers, with jewellers across the Gulf reporting buyers increasingly shifting toward lighter ornaments and exchange purchases rather than large, discretionary purchases. The Gulf market may witness two parallel trends this summer — a surge in opportunistic buying by NRIs seeking price advantages, alongside weaker overall consumption because of high bullion prices. Prime Minister Narendra Modi on Sunday urged citizens to avoid buying gold for a year to help preserve the country's foreign exchange reserves. Analysts warn that sharp increases in Indian import duties have historically encouraged grey-market activity and unofficial gold flows through regional transit hubs, with smuggling incentives potentially increasing if domestic Indian prices rise significantly above international levels. A Mumbai-based commodities analyst said India has historically seen a rise in unofficial channels whenever import duties become too high. The government may gain some short-term relief on reserves, but sustained high tariffs risk distorting the market over time.
