India's Gold Import Duty Hike Sparks Price Surge and Grey Market Worries

The Indian government has increased the import duty on gold from 6% to 15%, which includes a basic custom duty of 10% and an Agriculture Infrastructure and Development Cess (AIDC) of 5%. According to experts, this hike will have a significant impact on the demand for physical gold, gold ETFs, and other gold-related investments.

Gold prices in India have surged, with 24-carat gold prices jumping by Rs 13,910 to Rs 1,67,890 per 10 grams. The import duty hike is expected to push up domestic bullion prices further, which could weigh on jewellery stocks and soften consumer demand.

Anindya Banerjee, Head of Commodity and Currency Research at Kotak Securities, stated that the government's move is a 'measured policy response' to conserve India's foreign exchange reserves. However, Prithviraj Kothari, Managing Director at RiddiSiddhi Bullions Ltd., warned that the higher duties could lead to a resurgence in gold smuggling and grey market activities.

The World Gold Council estimates that every 1% increase in import duty reduces consumer gold demand by approximately 6.4 tonnes, implying a cumulative 9-percentage-point hike could suppress demand by ~57 tonnes annually.