The rupee has been under relentless pressure of late, and one of the factors contributing to the same is imports. Within imports, oil is the major component, which has been a challenge for the government as the price has been above $100/barrel with the closing of the Strait of Hormuz. The issue of gold imports has come to the discussion table again, with a call being made to lower the demand. Is this possible? And if so, what are the options?
The data on gold imports is interesting. They have peaked at $72.4 bn in FY26. Ten years back, they were at $31.7 bn, which means that they have more than doubled. However, when one looks at the quantity imported, the picture is very different. Imports in FY16 were at 968 tonnes, which was overtaken in FY19 at 982 tonnes. Subsequently, the trend has been downwards. It came down to 651 tonnes in FY21, which had one month of Covid-19. It increased to 879 tonnes in FY22, as gold became a safe haven for investors, and has trended downwards subsequently. It was at 795 tonnes in FY24, 757 tonnes in FY25, and 721 tonnes in FY26.
This has some interesting implications. The first is that imports have come down for sure in physical terms. However, with the price of gold rising sharply due to the tariff crisis followed by war, the imported value has gone up.
Second, the demand comes mainly from individuals, who invest in gold as a saving habit, and from ETFs, which buy in bulk. Now, the individual demand would have been affected by the higher price and their purchases affected. Typically people buy gold with a budget in mind. For the better-off persons, the target would be in quantitative terms of 100 gm or 50 gm. For the lower income groups it would normally be a monetary limit of Rs 1000, 10,000, or 1 lakh. The former would not be affected for sure, as cost does not matter. But for the second category, a lower quantity would have been purchased.
Third, the investments of the ETFs would be high. The AMFI data shows that in FY21, the assets under the management of gold ETFs were around Rs 14,000 cr, which in five years has risen to Rs 1.7 lakh crore in FY26. Now typically, the ETFs keep a physical backing of 90-95% of the value of the commodity. Intuitively, it can be seen that this has contributed to the demand for physical gold, with the price being less relevant, as there is a natural hedge in the value of gold and the fund.
Are there ways to control this proliferation in gold imports? There are options, and a call needs to be made. First, at the extreme, one can put quotas on the amount of gold that can come in. This is not feasible, as it will encourage smuggling and also create a black market for these licenses.
Second, a tax or duty can be imposed to push out some part of the demand. This is what has been done by the government by increasing the customs duty on both gold and silver by 9% from 6% to 15%. Here the lower income group, which buys based on a limited budget, will be affected. Higher income groups may not quite limit their purchases, as this may not matter. But a higher duty will push up the cost of gold, which will impact the CPI inflation numbers and, hence, have a bearing on the monetary policy. Therefore, this is not straightforward, and the trade-off has to be kept in mind.
The third option is to go back to the sovereign gold bonds, which worked well, as they did wean the investor away from the physical handling of gold. Here, there will be some serious discussion, as the government has been redeeming existing bonds prematurely, given the holding cost. Therefore, this will again be a tough call.
Fourth, gold deposits were also on the table, but this would mean parting with gold, which practically speaking may not be agreeable to those who like to keep it in lockers and remain anonymous. It will work if those holding the gold deposit it in banks, which, in turn, will sell it on the market. But such deposits have to be returned to the holder, which will mean taking a price risk. This may make it less feasible.
Fifth, another option is to push investors to future markets, where certain tax benefits can be given so that an avenue opens up which does not involve physical gold. In fact, non-deliverable contracts can be introduced by MCX and NCDEX to garner interest. The only cost for the government would be in the tax foregone, which would be much lower than the cost borne by the SGBs.
The last option is to do nothing and treat this as being transient. In fact, such issues have come up periodically, which has affected the import bill. The problem today is not so much the amount of gold being imported but the cost. This price is determined globally, and there is little that price takers can do about it.
In fact, curiously, central banks have been diversifying their forex assets by buying more gold. While these numbers do not enter the trade numbers, as they are dealt with independently by central banks, the international price has gone up due to this demand as the purchases tend to be of high value. For example, the RBI held 653 tonnes of gold as reserves in March 2020. This rose to 880 tonnes in March 2026. A similar motivation of diversification, hence, also holds for households that buy and hold gold for similar reasons.
The government can consider all these options to control the volume of gold imports. This will become important if the West Asia crisis gets prolonged, putting the balance of payments under pressure.
The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal.
