• India tightens restrictions on gold imports to curb a widening trade deficit and support the rupee.
  • The measures include higher duties and stricter clearance rules, which are already pushing up domestic gold prices.
  • Market participants expect a short-term dip in import volumes, but warn of potential smuggling risks.

India has escalated its efforts to rein in gold imports, announcing new curbs aimed at reducing a trade deficit that has been pressuring the rupee and foreign exchange reserves. The government, in coordination with the Reserve Bank of India, has raised import duties and tightened licensing requirements for bullion, according to people familiar with the matter. The move follows a sharp surge in gold purchases during the recent festival season, which exacerbated the current account deficit.

The new measures increase the effective cost of importing gold, with duties rising from 6% to 9% on certain categories of bullion, traders said. Importers now face stricter documentation and compliance checks, slowing clearance at customs. “The government is clearly trying to curb demand without imposing a full ban, but these steps will squeeze legitimate imports,” said a Mumbai-based bullion dealer who declined to be named. “Prices have already jumped by nearly 3,000 rupees per 10 grams since the announcement.”

The timing is critical: India’s trade deficit widened to a record $31.5 billion in November, driven partly by gold imports of over $8 billion. The rupee has weakened more than 10% against the dollar this year, adding to inflationary pressures. By targeting gold, policymakers hope to stabilize the currency and reduce the external imbalance without resorting to more disruptive capital controls.

Industry groups have expressed concern over the impact on the jewelry sector, which employs millions. “These curbs will hurt small artisans and jewelers who rely on imported gold,” said a spokesperson for the All India Gem and Jewellery Domestic Council. “We urge the government to consider a phased approach.” Others worry about a resurgence in smuggling, which previously spiked during similar restrictions in 2013-2015. “When legal channels become too costly, illicit flows pick up,” said a trade analyst.

Banks and large importers are also adjusting: some have halted fresh purchases until clarity emerges on implementation timelines. The Reserve Bank of India is expected to issue detailed guidelines in the coming days, according to a central bank official who asked not to be named. In the short term, analysts expect gold imports to fall by up to 30% year-on-year in the next quarter, helping to narrow the trade deficit. However, if domestic prices remain elevated, consumer demand may shift to silver or alternative savings instruments.

Correction: An earlier version of this article misstated the duty increase. The change is from 6% to 9%, not 6% to 12%.