MCX spot gold prices closed at Rs 1,51,181 on Tuesday and are trading at Rs 1,60,324 on Wednesday, a jump of Rs 9,143 per ten grams of 22 carat gold. Gold price in India in the MCX futures market is Rs 1,62,262, up by 5.75% on Wednesday. In the international market, gold continues to trade under $4,700, down 3% in the last 30 days and still facing downward pressure after stronger-than-expected US inflation figures reduced expectations for Federal Reserve rate cuts.
India has increased effective import duties on gold by 9 percentage points, days after Prime Minister Narendra Modi urged Indian households to reduce gold purchases for a year, including wedding-related jewellery. Gold import duty has been effectively raised to 15% from 6%.
The amended tax structure, which takes effect immediately, includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC), dramatically increasing the cost of importing gold and other precious metals like silver into the country.
The Prime Minister’s appeal and the duty hike aim to mitigate the adverse effects of the rising dollar amid the Iran war.
Why It Matters: Demand and Supply
India’s gold mining cannot meet domestic demand, and as a result, over 700 tonnes of gold are imported every year. India’s average monthly gold import increased to 83 tonnes in the first two months of 2026, up from 53 tonnes in 2025, as reported by the World Gold Council.
So, how much impact is projected in terms of demand reduction? “WGC data indicates that each 1% duty increase reduces consumer gold demand by roughly 6.4 tonnes — meaning the cumulative 9-percentage-point increase could suppress annual demand by approximately 57 tonnes,” says Dr. Renisha Chainani, Head, Research at Augmont.
In other words, the 9% increase in import duty will only offset gold purchase quantity for one month, without a change in prices.
Impact on CAD
At a time when the INR is falling in value against the dollar, the import bill for meeting old imports is pinching the government’s finances. Simultaneously, the rise in oil prices due to the Iran war is also impacting the import bill. Oil prices have jumped over 40% since the outbreak of the Iran war. India’s gold imports reached $72 billion in the year ending March 31, marking an increase of nearly 25% in value compared to the previous year.
One key reason behind discouraging gold buying for a year could be the risk of widening the current account deficit (CAD). A current account deficit occurs when a country pays out more money than it brings in, often indicating that it is investing more abroad than saving domestically.
Simply put, a current account deficit (CAD) happens when a country imports more than it exports, often driven by high oil or gold imports. India’s CAD reached $13.2 billion (1.3% of GDP) in Oct-Dec FY26, which can lead to currency depreciation, higher inflation, and increased costs for imports. All of these are already taking shape and impacting the economy.
Falling Forex Reserves
According to the Reserve Bank of India, foreign exchange reserves in India fell to 690.69 USD billion on May 1 from 698.49 USD billion, declining by 7.7 billion US dollars from the previous week. Gold reserves fell by 5 billion US dollars to 115 billion US dollars. Foreign currency assets, the largest component of the reserves, also decreased by 2.7 billion US dollars to 551 billion US dollars during the week.
Foreign Exchange Reserves in India were at an all-time high of 728.49 USD billion in February 2026 and a record low of 290 USD billion in September 1998.
Indians and Gold Buying
Indians, traditionally, have a large appetite for gold and are the second largest consumers of gold, after China. Indians reportedly hold over 25,000 tonnes of physical gold, valued at over US$ 2.4 trillion.
In 2025, not just jewellery, the demand for gold funds also saw unprecedented inflows. Net inflows of INR 430 bn or Rs 43,000 crore (US$4.9bn) and net demand of 37t were the highest on record. India’s trade deficit for the year ending in March increased to $120 billion from $95 billion the previous year, driven by higher import costs of energy, fertilizers, and gold.
Rupee Vs Dollar
The Indian Rupee fell nearly 10% against the US dollar during the period April–March 31, 2026. Back in 2017, you required Rs 64 to buy a dollar; in 2022, you needed Rs 80; in 2025, you needed Rs 86, and now in 2026, you need Rs 95.5, as of May 13. Over the last 1 year, INR has depreciated nearly 12% against the US dollar.
What History Shows
Back in FY2012–13, India experienced a significant increase in gold imports, surpassing USD 50 billion annually, which intensified the current account deficit (CAD) pressure, reaching about 6.8% of GDP. During this time, the rupee depreciated nearly 20% within nine months, prompting decisive actions from the government and the Reserve Bank of India (RBI).
Gold Price in India
The increase in import duty has already resulted in the price of gold shooting up. “The steeper duty structure also risks reigniting gold smuggling activity, which had declined meaningfully following the 2024 duty cut, warns Dr. Chainani.
Gold price in India in the MCX futures market is Rs 1,62,419 lakh, gaining 6% on Wednesday. In the international market, gold continues to trade around $4,700, down 3% in the last 30 days and still facing downward pressure after stronger-than-expected US inflation figures reduced expectations for Federal Reserve rate cuts.
Disclaimer: The content of this article is intended for general informational purposes only and does not constitute financial, investment, or policy advice. Gold prices, import duties, forex reserves, and currency valuations are subject to rapid change and may differ from figures cited at the time of publication. Readers are strongly advised to consult a registered financial advisor before making any investment or purchase decisions related to gold or precious metals.
