Rising non-essential imports like gold that weigh negatively on consumption need to be curbed to limit West Asia crisis impact on India’s current account deficit
The celebrated economist John Maynard Keynes once famously quipped that gold is a relic of a barbaric era, but the allure and lucrative value of this idle asset have seldom remained as undiminished as they are today. Presumably, the turbulent times the world economy is witnessing, with geopolitical tensions and concomitant supply chain shocks, mean that people have lost faith in the stability of fiat currency and are increasingly inveigled into buying esoteric assets, including cryptocurrencies and yellow metal, as safe-haven investments, even as these assets, by their very nature, are disproportionately priced risks, with price movements that are wild and wobbly.
For the domestic authorities, stung by the sharp spurt in crude oil prices in the wake of the ongoing conflict in the Middle East involving Iran, Israel and the United States, which has imperilled the normal flow of cargo movements and disrupted the supply of imported crude and fertilisers through the Strait of Hormuz, the growing cost of imports of many items that do not make any essential contribution to productive sectors of the economy but weigh negatively on consumption needs to be reined in. This is necessary to avert spillover effects on the macroeconomy through a distinct burst in the current account deficit.
Hence, the government wielded the stick, using the alibi of austerity in light of the emerging cost-of-living crisis affecting millions of poor people with little or inadequate income and without indexation to inflation. So, last week, the Centre doubled the effective tax paid on the import of gold and silver to a total of 18.4 per cent from the existing 9.2 per cent. This is aimed at forestalling the harsh impact of the West Asia crisis on India’s current account deficit, which is the difference by which the country’s total imports of goods, services and transfers surpass its exports.
There is an obverse side to this frontal attack on consumption, because it might tacitly encourage smuggling in yellow metal, as the Arabian Peninsula has traditionally provided a clandestine channel for gold, as recent experiences in Kerala involving gold fraud have testified. On December 1, 2025, Minister of State for Finance Pankaj Chaudhary conceded in a written response in the Lok Sabha that the Directorate of Revenue Intelligence confiscated 3,714.38 kg of gold worth Rs 2,081.39 crore at airports in 2023–24, and 1,848.29 kg worth Rs 1,286.27 crore at different airports in 2024–25. The subsequent numbers would likely have risen, given the regular reports of individuals being caught at airports across the country smuggling gold in increasingly ingenious ways, often at great personal risk.
Besides, labour-intensive gem and jewellery exports, which depend on the import of raw gemstones, diamonds and gold for value addition through ornaments crafted for sophisticated clientele, would also be hit in the wake of the latest impost on gold and silver imports.
It is no rocket science to deduce that the insatiable Indian clamour for acquiring precious metals is structural, not cyclical, as it is woven into savings habits, festive demand and portfolio behaviour across millions of households, and is hard to break. This is borne out by the sharp spurt in gold imports that persisted into the start of the new fiscal year itself, when imports surged by 82 per cent in April compared with April 2025.
The outlook appears bleak for lower gold imports going forward, given the gyrations in the bourses that have goaded retail investors into diversifying their portfolios through both physical gold and gold ETFs (Exchange Traded Funds). Already, concerns are rife that a higher import duty on physical gold would accelerate the shift towards gold ETFs. It is not for nothing that Indian households are estimated to hold 34,600 tonnes of gold valued at $3.8 trillion as of June last year, according to a report by Morgan Stanley.
Interestingly, central banks the world over hold gold in reserve and, in recent years, have brought those holdings back to their own countries instead of safekeeping them in major financial centres. This is to prevent others from using their bullion assets in the event of sanctions during these tumultuous times. Russia, for instance, is fully alive to this risk. The share of its foreign reserves held in gold more than doubled from 2014, and today it has repatriated all of it.
Meanwhile, reports citing data from the World Gold Council suggest that assets under management of gold ETFs listed in India rose from $7.2 billion in April 2025 to $18.4 billion in May 2026. Given their remit to bolster investments with physical gold, ETFs have increased their holdings from 65.3 tonnes to 116.7 tonnes in the same period, registering a galloping growth of 79 per cent.
Interestingly, calls have been made to allow gold ETFs to unlock their vaults as a mitigating measure to reduce high imports. But how far this would help cater to the clamant demand and prevent depletion of physical stocks, with no meaningful effect on gold prices, remains a million-dollar riddle.
(The writer is a Senior Economic Journalist based in New Delhi)
