Policy’s hold over sold gold?

As Finance Minister Nirmala Sitharaman readies to present a record eight Union Budget in a row, excluding an interim one, she needs to grapple with a glittering issue that seems to be perpetually in the grey. No, she does not need to worry much about the high gold prices, now ruling at Rs 1,60,000 per 10 grams, or whether she and her family wish to buy the bullion.

But experts feel that the country needs to find a solution to the growing imports of legal and illegal gold. Both have an adverse impact on the economy in different ways. Both can derail the FM’s economic vision for the future.

Recent media reports indicate that the Indian bullion dealers have begun to charge a premium of more than $110, over and above the official domestic price of gold, in the past few days. Earlier, they offered a discount of just over $10. Experts feel that the development relates to an expectation that the FM is likely to increase the import duty in the forthcoming Budget.

One of the experts, quoted in a media report, said, “People are speculating that the Government may raise import duties on gold and silver to curb imports…. Anticipating the hike, traders are charging premiums over record prices.”

If the duty is hiked, this will be a reversal of what Sitharaman did in 2024, when she slashed the import duty on gold from 15 per cent to six per cent, a huge nine per cent cut. The aim then was to curb extensive smuggling of gold. The policy did have an impact, as illegal imports came down. The continuous rise in gold prices, more than 40 per cent in the first nine months of this financial year, and nearly 70 per cent in the last calendar year (2025) dented genuine imports. This initially boosted the exports of gold jewelry.

However, the situation became complex as gold prices, after an initial dip due to the cut in import duties, continued to rise. This propelled a huge jump in the value of imported gold, despite a halt and plateau in volumes. In recent times, this affected the country’s trade deficit, and gave a new fillip to gold smuggling. In turn, exports of gold jewelry were hurt again. The

entire business and economics related to gold has gone topsy turvy, once again.

Hence, Sitharaman has little option but to correct the situation. However, as some experts put it, she is caught in a classic Catch-22 situation.

First, let us look at how the gold dynamics have changed. As mentioned earlier, legal gold imports have shot up in the recent past in terms of value. According to the World Gold Council, India’s gold import bill for the calendar year (2025) “remained broadly steady at $59 billion compared with the previous year; however, volumes declined by over 20 per cent, largely a reflection of higher gold prices.” In December 2024, imports were over $4 billion, a three per cent month-on-month increase, though a 12 per cent year-on-year decline. But monthly imports were high in September and October.

In October 2025, during the festive season, when the monthly imports were higher than 100 tonnes, the country’s trade deficit went for a six. In value terms, gold imports tripled, or were up by 199 per cent, and the monthly merchandise trade

deficit peaked at more than $40 billion, which was way higher than $26 billion on a year-

on-year basis. The monthly deficit came down in November and December 2025 to around $25 billion, partially due to the decline in gold imports. However, for the FM, bullion will be one of the issues on the top of her mind, as imports, at least in value terms, can surge again.

Smuggling is another headache for the policy-makers. After the import duty cut by nine per cent in 2024, illegal gold imports were down. However, they have crept up in the recent past. Official investigating agencies report higher seizures of illicit gold. In one of the cases, gold was being smuggled from China, via mules (animals, not human mules) across the Tibet border into India. The quantity was extensive, impressive, and shocking. Officials indicate that this is because of the soaring gold prices globally, and in India. The reason: High prices leave substantial margins for the smugglers. The calculations are simple. The current import duty is six per cent, and the local sales tax is three per cent. Hence, the smugglers enjoy a nine per cent margin between the global and domestic prices, which comes to over INR 14,000 per 10 grams at current Indian prices. Even if we assume the profit margins for the illegal importers to be a minimum of INR 4,000, it amounts to INR 4,00,000 per kg. If one considers smuggling of 50 tonnes a month, the monthly profit margins are an impressive INR 2,000 crore. This is enough to attract even the larger global criminal

syndicates to get into the act.

Hence, Sitharaman has two options, both that will work in a contradictory fashion. She can reduce the import duty from six per cent to, say, three per cent, as some experts demand, to curb smuggling. A lower duty will bring down the margins of the illegal importers, and make the illicit trade a bit unviable. But this will boost legal imports as the domestic price of gold becomes cheaper, and consumers are more enthused to buy the yellow metal. Sitharaman can increase the import duty to curb legal imports to manage the trade deficit, which makes the rupee stronger. But this will aid smuggling, and enhance the grey and black economy.

Do remember that Indians have a hue appetite for gold, whether legal or illegal. According to the estimates made by Morgan Stanley, Indians own 34,600 tonnes of gold valued at nearly $4 trillion. According to a media report, “This is more than the holdings at the central banks of the US, Germany, Italy, France, Russia, and China combined.” The report adds that the holdings amount to 25 grams per Indian, and underlies how sensitive it is to changing prices. Any change due to the duty structure will encourage gold buying in illicit or official form. So will the natural changes in prices.