India's decision to increase gold import duty from 6% to 15% effective Wednesday (May 13, 2026) may significantly boost gold imports from Dubai through the free trade agreement route, according to the Global Trade Research Initiative (GTRI). The move comes as India tries to conserve forex amid a declining rupee and elevated commodity purchases. The think tank noted that the 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). Under the previous regime, India 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 system began at 120 tonnes annually in 2022 and is set to rise to 200 tonnes by 2027, representing nearly one-fourth of India's yearly gold imports. According to GTRI, with the new MFN tariff structure taking effective duties to 15%, gold imported under the UAE quota would enter at 14%. The revised levy combines a 10% Basic Customs Duty (BCD) with a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the total effective import tax to 15% from 6%. Under the earlier regime, imports of gold and silver products attracted a 5% Basic Customs Duty (BCD) and a 1% Agriculture Infrastructure and Development Cess (AIDC), taking the total levy to 6%.
The revised structure doubles the BCD from 5% to 10% and raises the AIDC five-fold from 1% to 5%. As reported by GTRI, the combined customs levy has jumped from 6% to 15%. Including IGST, the effective import duty has surged from 9.18% to 18.45%. The move comes amid a surge in precious metal imports, with India importing nearly $72 billion worth of gold in FY 2025-26, around 25% higher than the previous year. Silver imports crossed $1 billion, recording an extraordinary 150% increase annually. Analysts expect the higher duties to quickly translate into higher domestic prices for gold and silver, which could temper consumer demand in the world's second-largest gold market. According to Senco Gold MD Suvankar Sen, gold prices are likely to remain at current levels for around a year, with volumes potentially impacted by 10-15% but value-wise remaining at higher levels as consumers shift to lighter-weight jewellery.
Under the CEPA, India had agreed to gradually reduce import duties on silver from 10% to zero over a 10-year period beginning in May 2022. The concessional tariff on silver imports from the UAE currently stands at 7%. With India now raising the general tariff to 15%, the duty gap has widened to 8 percentage points, creating a major arbitrage opportunity for imports routed through Dubai. GTRI Founder Ajay Srivastava noted that this margin is scheduled to widen further each year until CEPA tariffs fall to zero by 2031.
Despite the duty hike, India's gold import volumes fell 4.76% in FY26 to 721 tonnes even as the import bill surged 24.1% to nearly $72 billion due to average import prices jumping more than 30% year-on-year. As per InvestValue Capital CIO Aditya Agarwala, higher prices alone added roughly $17.6 billion to the import bill, while lower import volumes offset about $3.6 billion of the increase. Economists estimate that with gold trading near $4,700 per ounce, India would need to reduce import volumes by nearly 47% to roughly 384 tonnes merely to bring the import bill back to FY5 levels. The duty increase may help reduce India's trade deficit by $10-15 billion in the near term, representing less than 5% of the merchandise trade deficit. The policy shift comes as the rupee has been under sustained pressure, weighed down by global uncertainty and elevated commodity purchases, with the currency posting a modest recovery to 95.61 against the dollar after sliding to historic lows.
