India has experienced a significant rise in unofficial gold inflows since the government raised import tariffs on the precious metal earlier this year. According to the World Gold Council, the country more than doubled import tariffs to 15 per cent on May 13 to curb demand, cut the trade deficit and ease pressure on the rupee. As reported by the WGC, the 15 per cent duty and 3 per cent GST create an 18 per cent difference, which has almost spurred an entire industry and widened margins for grey-market operators. Sachin Jain, chief executive of the WGC's Indian operations, told Reuters that "the arbitrage is so huge. I mean, with the 15 per cent duty and 3 per cent GST, there's an 18 per cent difference, and that almost spurs an entire industry."
Indian enforcement agencies have significantly increased their efforts to combat illegal gold trade since the tariff implementation. According to government data presented to parliament, seizures rose to 160.91 kg from 86.16 kg between May 13 and June 30, compared to April 1 to May 12. The government told parliament that gold smuggling fell to 69.2 metric tons in 2024 from 156.1 tons a year earlier, and declined further in 2025 to 20.4 tons after India cut import duties on gold. Industry officials suggest that the recent resurgence in the grey market suggests illegal imports could exceed 100 tons in 2026. Despite increased seizures by authorities, the surge in illegal imports persists, with industry insiders speculating a potential peak in smuggling activities in the near future.
India's net gold imports fell 23 per cent year-on-year to 98.1 tons in the June quarter, marking the lowest quarterly level since September 2020, when pandemic-induced lockdowns curbed demand. As reported by the WGC, gold demand in the June quarter declined 6 per cent from a year earlier to 131.4 tons, as falling jewellery purchases outweighed strong investment demand. The WGC noted that demand is likely to improve in the second half of the year if prices remain stable, as many consumers who missed the earlier rally are expected to return to the market. The policy has weighed on physical supply flows and end-market demand, creating near-term headwinds for India's physical gold market.
The tariff hike has created significant disruption for organised players in India's gold market. According to Sachin Jain, chief executive of the WGC's Indian operations, grey market inflows and the disruption they cause are hurting organised players. As reported by Reuters, Jain emphasized that the arbitrage is so huge that it spurs an entire industry, with the substantial tax differential creating opportunities for unofficial operators while legitimate businesses face increased competition and regulatory challenges. The government didn't immediately respond to Reuters' queries regarding the enforcement measures, highlighting the ongoing challenges in balancing policy objectives with market disruption.
