India, the world's second-largest gold consumer after China, more than doubled import tariffs on gold to 15% on May 13, 2026, a move intended to curb demand, cut the trade deficit and ease pressure on the rupee. However, according to the World Gold Council (WGC), the sharp tariff increase has boosted the grey market and hurt organised trade.
Tariff Hike Details
The Indian government raised the basic customs duty on gold from a previous level to 15% effective May 13, 2026. In addition, gold imports attract a 3% Goods and Services Tax (GST), resulting in a total tax incidence of 18%. "The arbitrage is so huge. I mean, with the 15% duty and 3% GST, there's an 18% difference, and that almost spurs an entire industry," said Sachin Jain, chief executive of the WGC's Indian operations, in an interview with Reuters.
Impact on Grey Market
Grey market inflows and the disruption they cause are hurting organised players, Jain said. The recent resurgence in the grey market suggests illegal imports could exceed 100 tons in 2026, industry officials told Reuters last month. The 18% price differential between legal and illegal channels incentivises smuggling, undermining legitimate traders.
Imports and Demand Data
According to a WGC report published on Thursday, India's net gold imports fell 23% year-on-year to 98.1 tons in the June quarter of 2026, the lowest quarterly level since September 2020, when pandemic-induced lockdowns curbed demand.
| Metric | June Quarter 2026 | Year-on-Year Change |
|---|---|---|
| Net gold imports | 98.1 tons | -23% |
| Total gold demand | 131.4 tons | -6% |
Gold demand in the June quarter declined 6% from a year earlier to 131.4 tons, as falling jewellery purchases outweighed strong investment demand.
Outlook
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, Jain said. The tariff hike, while aimed at reducing the trade deficit, has created unintended consequences that organised trade players are grappling with.
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