India’s aggressive policy intervention to defend its foreign exchange reserves is yielding immediate results. Following the government’s decision to more than double the effective customs levy on gold, monthly inbound shipments have plummeted by nearly 70 percent.
According to senior Finance Ministry and Ministry of Commerce data, physical gold imports have fallen to roughly 25 to 30 tonnes per month, down sharply from the previous baseline of 70 to 100 tonnes.
The dynamics behind this sudden trade contraction center on a few key economic factors:
The Policy Mechanism: Reversing the July 2024 Cuts
The government raised the basic customs duty on gold and silver to 10 percent from 5 percent, while simultaneously bumping the Agriculture Infrastructure and Development Cess (AIDC) to 5 percent. This moved the effective import duty to 15 percent (touching 18.45 percent when adding the 3 percent Integrated Goods and Services Tax / IGST).
The steep increase completely reverses the tax cuts introduced in July 2024 and stands as the sharpest single duty hike on record for the precious metal. The sudden regulatory friction was designed to curb non-essential imports, compress a swelling trade deficit, and protect the rupee amid global geopolitical uncertainties.
Tracking the Shift: April vs. May Outflows
The contraction is visible in the latest import value statistics released by the Union Ministry of Commerce:
- April 2026 Baseline: Prior to the mid-month tax adjustment, India imported gold worth approximately $5.63 billion.
- May 2026 Contraction: Immediately following the May 13 policy implementation, monthly gold import values dropped to roughly $3.42 billion.
The Physical Retail Cool-Down
The drop in import volumes reflects a severe retail slowdown reported by the India Bullion & Jewellers Association (IBJA). Fortnightly consumer gold demand plunged to 7.5 tonnes in late May, compared to 25 tonnes during the same period last year.
Aside from the higher tax sticker shock, jewellers across India note that retail footfalls are being suppressed by record-high baseline commodity prices and an inflationary squeeze on household budgets linked to ongoing conflicts in West Asia. Furthermore, the market has seen an unprecedented 5 percent to 15 percent surge in old-gold exchange transactions, as consumers opt to recycle existing family jewelry rather than purchase newly imported bullion.
To further tighten the ecosystem, the government has refused to renew import authorizations for several previously designated dealer banks and capped duty-free imports under the Advance Authorisation scheme at 100 kg. By cutting official import channels and driving up the cost of raw material, New Delhi is successfully cooling discretionary gold consumption to safeguard industrial capital.