Budget FY27: Gold import duty unlikely to be changed amid stable CAD outlook

During October, gold imports rose nearly 200 percent to $14.7 billion against $4.9 billion a year ago.

The FY27 Budget is unlikely to change import duty on gold, government officials told Moneycontrol, despite expectations of high inflows for some more time. The surge is seasonal and poses no threat to the external sector.

“There is no cause for concern from the current account perspective. The surge in gold imports is seasonal and these imports are coming under the most favoured nation (MFN) regime with a 6 percent duty,” one of the officials told Moneycontrol on condition of anonymity.

India’s current account deficit (CAD), a major part of the Balance of Payments, narrowed to 1.3 percent of GDP in the second quarter from 2.2 percent a year earlier, though it was wider than the preceding quarter’s 0.2 percent.

However, BoP recorded a deficit of $10.9 billion in the second quarter due to patchy foreign inflows against a surplus of $18.6 billion a year ago.

Recently, Reserve Bank of India governor Sanjay Malhotra said he does not expect India’s CAD to touch 2 percent of the GDP in this fiscal.

A second official said changing duty on gold is not a good option. It won’t reduce imports but instead fuels smuggling and market distortions. Higher duty widens the gap between official and grey market rates, encourages dollar-based smuggling, and reverses efforts to curb illegal trade in the precious metal.

In October, gold imports rose nearly 200 percent to $14.7 billion against $4.9 billion a year ago, though sequentially, the rise was relatively lower yet elevated at nearly 53 percent.

In quantity terms, gold imports jumped to 165 tonnes in October from 60.63 tonnes in the year-ago period.

A look at the monthly average of the first seven months of FY26 reveals that while gold imports rose by only 2.3 percent in quantity terms, their value jumped by 21.4 percent, indicating that the market is paying significantly more for almost the same amount of the yellow metal.

“It is incorrect to say that gold imports rose because the duty was lowered. The rise in imports has no correlation with the duty cut. The core reason is that demand for gold remains strong, and therefore, import requirements stay high,” the second official said.

Basic customs duty on gold was more than halved from 15 percent to 6 percent in July 2024.

The government instead is tightening vigilance against circumvention, cases where gold or platinum enters the country mis-declared as other products.

“Whenever there is circumvention, we are plugging it, where, under the garb of something else, gold or platinum is coming in. We lowered gold import duty a while back and it is not under consultation right now,” the first official said.

Recent notifications from the Directorate General of Foreign Trade (DGFT) have restricted imports of certain precious-metal alloys and compounds to prevent bullion from coming in “in the garb of chemical compounds”.