Grey Market Gold Imports Surge in India Amid Tariff Hike

The Indian government's decision to raise gold import tariffs to 15% has led to a surge in illegal gold imports, according to data from the World Gold Council (WGC). This policy change creates an 18% cost advantage for illicit operators, who can also avoid paying the 3% Goods and Services Tax (GST), making grey-market activity more attractive.

Recent enforcement data shows that government agencies seized approximately 160.91 kg of gold between May 13 and June 30, nearly double the amount seized during the previous period from April 1 to May 12. This trend poses a significant challenge for organized gold retailers, who must navigate higher operational costs while competing with untaxed gold.

Official import data for the June quarter reveals that net gold imports fell 23% year-on-year to 98.1 tons, marking the lowest level since September 2020. While some of this decline can be attributed to a drop in overall gold demand, the parallel rise in grey-market activity suggests a migration of demand rather than a total disappearance.

The WGC remains cautiously optimistic for the second half of the year, but warns that if illegal imports reach projected levels, it could disrupt the revenue growth of formal jewelry companies. Investors should monitor the quarterly performance of major jewelry brands and their ability to maintain operating margins despite the influx of cheaper, illicit gold.