Gold Import Duty Hiked: Why Gold Smuggling Could Explode in India?

Added: 2026-05-15

[00:00:00]Government has already imposed 15% import duty on gold and we know clearly today that gold is more expensive than it was 2 days back. But the question here is if gold is getting expensive, how that brings more gold through smuggling? How these are related? And most importantly, when the prices of gold are at high end, we can only see that the middle class is suffering, the jewelry sector will get an impact, but what about those who will get profit?

[00:00:31]Are there any people who might profit of these situations? We will be answering all of this in today's session. Hello everyone, welcome to Vajiram and Ravi's Flash News. My name is Shubhangi Singh and today we are going to understand two major things. First, why increased import duty is going to lead to higher risk of gold smuggling? And second, we are going to understand that yes, we can understand who's going to lose because of high gold rates, but are there any sectors or people who might profit from it? So the first thing that we need to understand from here is what has exactly been done. I've already covered this topic in very much detail. You can go and watch it in the playlist of Flash News. 2 days back it has been covered.

[00:01:16]Now, when the government raised 15% import duty, the whole idea of government was to reduce the non-essential imports.

[00:01:28]Now, let us just easily break it down.

[00:01:30]Now, we clearly know that in terms of gold, we are heavily import dependent.

[00:01:39]Because we are import dependent, whenever we are importing gold, we have to make the payment in dollars.

[00:01:47]And if this gold is coming into our country, the government also views it as non-essential import because it does not add directly to productivity.

[00:02:01]So, productivity enhancement is not happening. It is only adding to wealth.

[00:02:05]So, government understands this as a non-essential import, and government has to pay more and more dollars. Now, what problem is in terms of paying dollars?

[00:02:15]First, that forex reserves are utilized.

[00:02:20]They will deplete. Second problem, that more demand for dollar means rupee will weaken.

[00:02:28]And specially in a crisis time where this forex reserve stands as a very strong wall protecting, this also becomes very important. At the same time, the slide of rupee has shown that how vulnerable our economy is getting day by day. So, we need to protect this as well. And both of this can be addressed through not importing or limiting the imports of non-essential goods. Gold being biggest of that.

[00:02:58]And this is where we clearly get it that if the import can be controlled, that the amount that the government is paying, that will also be reduced. Now, from this perspective, what we will see as an impact is that that gold will become costlier in domestic market.

[00:03:15]Import duty has increased, understandable. That means it will deter imports. Initially, if something was coming for 100, let's just say X grams were coming for 100 rupees, now 115 same X grams.

[00:03:30]Now, domestic markets will find gold costlier. Jewelry prices will also rise sharply because of that. If you look at the rates of gold, there is a drastic difference. And another important factor which will give us insight into what we are going to discuss now, that legal imports will become expensive. Why I'm saying so? Because it is not just about import duty. It is also about GST and other compliance taxes which might be involved in this scenario.

[00:04:01]Now, based on this understanding, let us understand that how this higher duty is going to have a direct hand in increased gold smuggling. This is not just based on numbers, but also historical incidences that we have seen. Now, let us look at the gold rate that has seen a sharp increase in last 2 days.

[00:04:26]Now, when we look at this, we clearly get to see that the legal gold price has gone up.

[00:04:33]At the same time, if the gold is going to come without paying import duty, that means if it is it will be smuggled, the price will be comparatively lower.

[00:04:43]And the higher import due to duty is, the more will be difference between illegal and legal price. So, again, let's take the example of 100.

[00:04:53]Import duty is 115, so difference is of 15. But, let's just say import duty is of 30.

[00:05:01]So, 30 rupees difference, and just multiply it with bigger numbers. Because as of now, today we stand Again, gold has crossed the mark of 165,000.

[00:05:11]We don't know where it will saturate out, but last I checked, it was there.

[00:05:16]Now, this difference itself that I'm talking about, that makes smuggling a very obvious choice and a profitable choice.

[00:05:27]So, the numbers are adding up why gold smuggling can actually There are risks of it because of increased import duty.

[00:05:34]And the second factor that comes in, that smuggling over the years has also evolved. Not just technologically, but also how to use manpower to advantage.

[00:05:47]So, hidden inside electronics, melted industrial components, proper human courier networks, hawala financing, drones are being used, and this is where we get to see that when we are talking about demand in India, that is the reason for import.

[00:06:06]So, demand will not go anywhere, but because of the increased prices, they might not able to buy.

[00:06:13]So, when we are looking at high demand with high duty, this is where people are forced to look on different sides. And this is where all the time we see expansion of grey market. So, this is not a theory that we are predicting for future. This is something that is established, and that is why it is a key concern. We have seen it in India, be it 1968 when gold controls act was brought. Strict controls were brought in, and it immediately created the black market.

[00:06:47]Informal gold trade expanded massively.

[00:06:51]Then, 2013, duty hike was seen. Then, the smuggling from Gulf countries saw a huge surge.

[00:07:00]Airport seizures, that is why also increased sharply. So, we see it in data as well. And again, when we are proposing the theory that high import duty is directly see increase in smuggling cases, this is not just India's past experience, but at the same time, across the globe as well.

[00:07:20]Turkey, when saw the currency crisis and gold control, the informal bullion market trade, that increased. Sri Lanka, when the forex crisis happened, forex restrictions were placed during the crisis, and maritime smuggling boosted.

[00:07:36]So, we clearly see a common pattern whenever excessive restriction, high duties will be placed underground or parallel economy, parallel market will be created to address the demand. Because the demand is not going anywhere, especially when we are talking about gold in India. So, I hope you have a fair clarity that how these are connected. Now, let us move to talk about the second thing I was discussing, that who gets to profit from this.

[00:08:05]One biggest entity that is going to profit from the high import duties are the gold loan companies. Major companies such as Muthoot Finance or Manappuram Finance and other NBFCs, but please remember we are talking about gold focused NBFCs, they will be in for profit. Why they will benefit? They they will benefit because as of now the pledged jewelry that they have, its value increases. So, let's take an example.

[00:08:34]A person took 10 g worth of gold and got loan on that. So, 10 g worth of gold, if we look back almost a year, can we say it would have been somewhere around 1 lakh?

[00:08:51]Or let's say 1 lakh 20,000 if you're feeling that ma'am is being generous here, 1 lakh 20,000. They would have got loan based on this value.

[00:09:00]But that gold which is with NBFC, now because of price hike and the import duty, the price rally that has happened for gold and that has valued more than this now.

[00:09:14]So, the NBFC which gave loan on the this value, they are getting this value, they are being better protected, their collateral has more value.

[00:09:25]This also gives higher loan eligibility to the person who is taking loan and recovery risk, specially for NBFCs, dials down, goes down. But other than them, it seems like that on the gaining end, it is going to informal bullion markets and smugglers.

[00:09:42]But the losing end is for many people, be it for jewelry sector, be it for the middle class. But when we look at who is going to bear the loss, we have multiple names, such as consumers. Consumers would have to pay for more expensive jewelry. The wedding cost will be increased. Affordability of gold is going beyond middle class. Then small jewelers will be hit the hardest. They will see lower sales. The working capital, which is limited for small jewelers, that will be in stress. And the illegal gold that we just talked about, that is going to give heavy competition. Apart from that, it's not that big jewelry brands are safe. Their margins will also be heavily reduced.

[00:10:27]The retail demand is definitely going to see a setback. And how they will maintain the inventory in the margin pressure, that also remains a huge challenge.

[00:10:38]At the same time, government is also on the losing end because lower tax realization is possible. Because if smuggling is going to increase, the import duty that they has been increased, that will not be received.

[00:10:50]People will be using other channels. So lower tax realization. Apart from that, if government wants to ensure that this does not happen, government would have to invest more to ensure that enforcement is properly done.

[00:11:05]So all in all, yes, government is trying to address a situation in front of us in order to reduce the dollar outflow, control current account deficit, but there are a lot of risks as well that government should understand, balance, and address. Now, what are your thoughts on this? Let me know in the comment section. I'll be leaving you here with the prelims practice question. Let me know the answer in the comment section.

[00:11:29]Thank you so much.