The Union Budget 2026 should consider evaluating a gradual reduction in customs duty.
Gold occupies a distinctive position in India’s financial landscape. With India’s GDP estimated at $4.18 trillion, the value of gold held by Indian households—at nearly $4 trillion at current prices—stands almost at par with annual economic output. Few assets command such economic, cultural, and financial significance.
Traditionally, gold has served as a preferred household savings instrument, perceived as a safeguard against macroeconomic risk, a reliable form of collateral, and a key variable for policymakers managing external balances. While gold has historically been subject to frequent fiscal and administrative intervention, the current environment suggests that gold policy is entering a phase of relative stability.
Policy Evolution: Balancing Competing Objectives
Over the past decade, the gold policy has attempted to balance three competing objectives:
1. Moderating gold imports
2. Formalising the gold market
3. Developing financial alternatives to physical holdings
With several of these objectives now partially achieved, the scope for aggressive intervention appears limited.
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Import duties have long been the government’s primary tool for influencing gold demand. During periods of macroeconomic stress—most notably between 2012 and 2014—duties were raised sharply to contain imports and protect the current account. While these measures were arguably effective in the short term, they also resulted in unintended consequences, including increased smuggling and a widening disconnect between domestic and global prices.
The more recent reduction in gold import duties marked a clear shift in policy direction. By lowering effective rates, policymakers aimed to improve compliance, reduce unofficial trade, and restore transparency across the gold value chain. This recalibration eased the burden on Indian consumers and also helped reduce the government’s accumulated liabilities under the Sovereign Gold Bond (SGB) programme. With this adjustment now in place, import policy appears to have entered a consolidation phase.
Weaker Rupee, Widening CAD, and Gold Imports
On a year-to-date basis, gold imports have totalled approximately US$51 billion, reflecting a 16 percent year-on-year increase. However, import volumes—estimated at around 559 tonnes—are down 12 percent y/y, highlighting the impact of elevated gold prices.
While the increase in dollar outflows for gold purchases could appear adverse for India’s current account deficit (CAD), it should not be viewed negatively. The decline in import volumes clearly indicates lower real consumption, with the increase in import value largely attributable to higher global prices rather than excessive demand. It is therefore important that this data is interpreted in its true spirit and does not trigger an adverse policy response.
Mistakes of the Past
Historically, mainstream economists and policymakers have adopted a somewhat hostile stance towards gold. This view was shaped by the perception that gold added little to productive capacity and was emblematic of cultural and economic backwardness.
From an economic standpoint, private-sector gold accumulation was seen as exacerbating foreign exchange imbalances by diverting scarce external resources toward imports. Excess demand for gold was often blamed for creating an “external constraint” that supposedly hindered development and technological progress.
Yet, despite repeated efforts to suppress demand, household balance sheets consistently showed rising gold holdings, underscoring the limited effectiveness of restrictive policies. Hopefully the rising gold price have underscored the importance of the strength that India’s aggregate gold holdings help achieve for the Indian economy.
Also read | Gold, silver jewellery demand weakens sharply in December 2025
The Case for Lower Customs Duties
Looking ahead, if the intent is to strengthen India’s role in global gold markets, there remains scope to lower customs duties further to align domestic prices more closely with global benchmarks. Higher duties risk reviving distortions observed in earlier cycles.
Consistent with the long-held view that a prerequisite for influencing prices—rather than merely accepting them—is market depth and openness, the Union Budget should consider evaluating a gradual reduction in customs duty. A move from the current 6percent to 4percent would likely be well received by markets and support India’s longer-term ambition of becoming a meaningful participant in global price discovery.
The path forward
The Committee on Capital Account Convertibility (CCAC) made several prescient recommendations on gold market liberalisation, emphasising the need to develop a transparent, well-regulated gold market integrated with broader financial markets—an approach successfully adopted by countries such as China.
The CCAC outlined four key policy pillars:
- Removal of restrictions on gold imports and exports,
- Development of gold-linked financial instruments,
- Creation of efficient markets for both physical and financial gold, and
- Encouragement of participation by banks and non-bank institutions. The committee also highlighted the importance of mobilising privately held gold for external adjustment, arguing that tariff removal and market liberalisation are prerequisites for this transformation.
What Indian Gold Markets Need to Influence the Global Markets
To move from being a price taker to a price influencer, India must:
- Gradually move towards a freer market, allowing gold imports and exports with minimal restrictions and aligning domestic prices with international benchmarks. Additional taxes, duties, and levies must be rationalised or abolished.
- Mobilise accumulated household gold wealth for productive use. Price distortions only reduce the likelihood of gold entering formal circulation.
- Rethink revenue generation. Customs duties contribute marginally to deficit reduction. Instead, post-market development, revenues could be generated through annual licensing or participation fees for foreign bullion players operating in Indian markets. India possesses all the prerequisites—scale, demand, and financial infrastructure—to become a global gold trading hub. Policy reform must focus on the bigger picture.Also read | Gold outperforms stocks in both developed and emerging markets since 2000: Report
Capitalising on the Trend
Rather than discouraging consumption, policymakers—along with the Reserve Bank of India (RBI)—should focus on channelling a portion of household gold savings into productive uses.
Gold ETFs have been a critical step in bringing physical gold into mainstream financial markets through dematerialised formats. Investors are increasingly gravitating toward efficient instruments such as ETFs and gold funds. The next step should be to incentivise these vehicles through:
- Tax breaks on investments or capital gains exemption
- Rationalisation or removal of GST on gold ETFs and funds.Such measures would encourage a behavioural shift, integrate gold more fully into the financial system, and improve its economic utility.
Will the budget glitter?
These reforms will not materialise overnight, but postponing or diluting them will only complicate the issue further. Without incremental yet decisive steps, India risks missing a historic opportunity to assume leadership in global gold markets.
Ultimately, clarity will emerge on Budget Day, when Finance Minister Ms. Nirmala Sitharaman rises to speak.
Until then, a hopeful nation—and a watchful gold market—awaits with bated breath.
Source: Bloomberg; World Gold CouncilThe writer is CIO, Quantum AMC.Disclaimer, Statutory Details & Risk Factors: The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.