With the Ministry of Finance announcing an increase in the import duty on gold and silver from 6% to 15%, there has been a tremor in investor sentiment, the bullion market, and among consumers. Among the sharpest interventions in the bullion market since the import curbs of 2013, the decision came amid heightened geopolitical uncertainty from the West Asia crisis.
Aimed at addressing the challenge of depleting foreign exchange reserves, the policy also strikes at the core of one of India's deepest consumer relationships with precious metals. From wedding purchases in small-town India to urban investment demand for bars and coins, gold has been integral to household savings, social customs, and financial security across generations. India is one of the world's largest gold importers, having brought in 721.05 metric tonnes worth $71.98 billion in 2025-26.
Rationale behind import duty hike
The announcement came two days after Prime Minister Narendra Modi appealed to citizens to stop purchasing gold for a year.
"India's foreign exchange resources must be prioritised towards essential imports such as crude oil, fertilisers, industrial raw materials, defence requirements, critical technologies and capital goods," an official from the ministry said.
According to Rahul Ahluwalia, founder-director of the Foundation for Economic Development and a former NITI Aayog official, India's foreign exchange reserves have already dropped by $7.79 billion in a week. "The gold duty hike is meant to slow dollar drain. Whether it works or triggers a revival in smuggling, as it did before 2024, is a question economists are watching," he said.
The PM's call signalled that policymakers increasingly view bullion imports as a macroeconomic vulnerability. The customs duty increase is also accompanied by quantitative restrictions, including a 100-kg limit on certain gold imports, reflecting a broader attempt to curb inbound shipments. With higher duties, prices are expected to rise further domestically. Finance ministry officials argue that precious metals, while culturally significant, are predominantly consumption- and investment-driven, leading to substantial foreign exchange outflows. Unlike energy, manufacturing inputs or technology, gold is relatively less linked to productive industrial activity — making reduced imports an effective lever to ease pressure on the current account deficit.
Consumer sentiment shift
With gold prices already skyrocketing over the past few quarters under lower duties, there has been a considerable shift in consumer sentiment. The duty hike is likely to cause further psychological disruption, arriving precisely when the traditional wedding and festive seasons are in full swing.
With the hike increasing the landed cost of bullion, retail buyers are set to face a sharp rise in jewellery prices. According to experts, the price shock will be amplified by the government's behavioural messaging. Renisha Chainani, Head of Research at Augmont, argued that the policy's true potency lies in its psychological signalling. "Modi's message points to demand deferral, not just margin pressure. Expect weaker retail offtake and slower inventory turns. The combination of price shock and official endorsement of restraint is more powerful than either factor alone; it creates social permission to defer," she said.
This concept of "social permission to defer" represents a structural shift in consumer psychology. With the PM's appeal, a section of consumers may view postponing purchases as a responsible act of national resilience. Demand is unlikely to disappear entirely, but experts anticipate a gradual rise in value-conscious buying.
Amit Modak, CEO of P N Gadgil & Sons, said sudden price surges typically force buyers to reassess behaviour. "Whenever there is a big surge in gold prices, buyers tend to re-evaluate the timing of purchases, opt for lighter-weight jewellery, or become more value-conscious. This may hit impulse or discretionary buying in the short run. However, fundamental demand related to weddings and festive occasions is likely to persist," he said.
This sentiment shift could also push younger consumers towards alternative precious metals. Manan Bohra, co-founder of Rasa Silver Jewels, noted that with gold prices near historic highs, there could be a major shift towards silver ornament purchases. Deepak Khanna, owner of DRK Jewels, agreed: "The premium and bridal segments may remain resilient, but impulse and discretionary purchases could see a temporary slowdown as consumers adjust to revised pricing."
Taper tantrum memories
While the government aims to curb non-essential imports, the duty hike has also revived memories of 2013, when India raised gold levy to tackle a widening current account deficit during the taper tantrum crisis. While those measures succeeded in reducing official import volumes, they also triggered a surge in smuggling.
Sachin Sawrikar, founder and managing partner at Artha Bharat Investment Managers, cautioned: "When the price of the legal channel rises this steeply, a well-established informal trade simply fills the gap. We saw exactly this after the 2013 duty hikes. The forex savings the government hopes to achieve may prove largely illusory, while consumers end up paying a premium."
Industry executives fear history may repeat itself. Surendra Mehta, National Secretary at the India Bullion and Jewellers Association (IBJA), warned that illegal imports could disproportionately benefit unorganised players. "The jewellery business may decline by 5–7%, while overall demand may fall by 10%. Discounts in the market will remain elevated," he added.
Surge in resale of old gold
While demand may moderate only marginally, analysts expect exchange-based purchases to emerge as one of the biggest structural shifts. India is estimated to hold around 25,000 tonnes of gold within households, much of it lying idle. Jewellers believe exchange programmes — where consumers trade old jewellery for new designs — are likely to accelerate sharply. According to Chainani, old gold exchanges already account for 40–50% of sales, and that share could rise further under the new regime.
If even a fraction of India's household gold stockpile is brought into circulation through formal exchange and recycling, pressure on fresh imports could ease significantly, without consumers giving up the cultural or financial role gold plays in their lives. The Gem and Jewellery Export Promotion Council (GJEPC) has also proposed actively promoting 14-karat and 9-karat jewellery, arguing that lower-carat products could reduce import dependence by 20–30%.
Impact on investment
From an investment standpoint, the 15% tariff fundamentally changes the risk-reward profile of physical bullion. Historically, Indian households have treated gold bars, coins, and high-purity jewellery as liquid savings instruments.
The GJEPC has written to the government urging it to discourage retail investment in pure gold bars, billets, and coins — currently accounting for 20–30% of total imports — and has proposed restructuring the Gold Monetisation Scheme (GMS) to tap into privately held gold stored in homes and temples.
According to Chirag Mehta, CIO at Quantum AMC, the duty hike delivers an immediate mark-to-market gain for existing holders but creates a significant barrier for fresh investors. "New physical buyers now face a steep premium driven by the 15% import duty and 3% GST, making physical entry structurally inefficient. Gold demand is not the root problem; it is a symptom of macroeconomic conditions. Suppressing demand through duties may alter how gold enters the system, but not why investors seek it," he said.