Kamal Ghorui
Gold is expected to become costlier after the government’s recent move to raise import duty to 15%. Alongside, the impact is likely to show up in domestic prices as well as trade patterns, a report by SBI Research has predicted.SBI Research said that changes in gold import duty have been made several times in the past, and each instance has had an impact on market behaviour. One of the main effects is a widening gap between international and domestic gold prices, which can create arbitrage opportunities and may also push some supply towards grey channels.“The decision to increase duty on gold imports has been taken on numerous occasions in the past. However, imposition of duty has its consequences in diverting the physical supply to grey channels,” the report said.
The duty was earlier reduced to 6% in June 2024 and has now been increased again to 15%.The report said that higher import duties tend to raise the landed cost of gold, which can influence domestic prices. It also noted that past periods of higher duty have been linked with an increase in seizures by the Directorate of Revenue Intelligence (DRI), based on monthly data.
Import trends: value rises, volumes fall
SBI Research pointed to a clear divergence in import trends. While the value of gold imports has increased sharply from $57.9 billion in FY25 to $72.4 billion in FY26, import volumes have fallen by around 5% in both FY25 and FY26.This suggests that the rise in import value is driven mainly by higher prices rather than stronger demand.“This shows that the overall import bill has been dominated by price effect while volume effect is negative for the last two years,” the report said.
On the Current Account Deficit (CAD), the report said gold imports do not show a fixed pattern of impact. Sometimes the effect is higher, sometimes lower, and there is no clear trend linking CAD movement directly with gold imports.It added that the most significant impact was seen in FY12 and FY13 in terms of GDP. However, recent trends suggest gold may once again play a notable role in CAD calculations.The report also highlighted that not all imported gold stays within the domestic market. Around 38% of imported gold is re-exported as jewellery, which reduces its direct impact on domestic consumption and the external account.
SBI Research said the latest duty hike could once again lead to outcomes seen in earlier periods, such as pressure on physical gold supply and a possible shift towards informal channels driven by wider price differences. It added that gold import volumes have already been on a declining trend for the past two years and may continue to adjust further, although the scale of the decline remains uncertain.“We expect that the current hike in duty may see similar trends as seen in the past. However, we also feel that given the strong negative volume effect seen in recent two years, there will be some downward adjustment in volumes, the extent of which is however uncertain,” the report stated.
