The Union Budget focus has sharpened with the runaway rise in gold prices. With India’s Budget conversation circling import duties and prices, the Budget has emerged as a sensitive trigger for consumers ahead of key policy calls that Finance Minister Nirmala Sitharaman will present on February 1.
As markets swung heavily between red and green over the past year amid global and domestic uncertainty, the yellow metal kept soaring, posting its best annual performance since 1979. The darling of Indian households notched a series of records in 2025, driven by strong demand for safe-haven assets, US interest rate cuts and a weaker dollar. Global prices were up by 67% last year and hit a record high of $4,549.7 per troy ounce on December 26.
India’s deep-rooted appetite for gold is well known, with households owning about 34,600 tons, worth about $3.8 trillion, according to Morgan Stanley estimates. That is more than the holdings at the central banks of the US, Germany, Italy, France, Russia and China combined.
For India’s population of 1.4 billion, that works out to almost 25 grams per person, valued at more than $3,250 at current prices, underlining how sensitive the country is to changes in bullion prices.
With the Union Budget nearly a week away, this sensitivity is pushing gold-related policy suggestions into focus.
Call of Customs Duty in Budget 2026
The government slashed the basic customs duty on the precious metal from 15% to 6% in July 2024, which led to a drop in smuggling cases into the world’s second-biggest buyer of gold. However, Customs and Directorate of Revenue Intelligence (DRI) officials told Reuters in October last year that smuggling had increased in recent weeks, with several attempts foiled at Indian airports.With bullion prices through the roof, smuggling a kilogram of gold has become highly lucrative for grey market operators, with margins exceeding Rs 11.5 lakh from dodging the 6% import duty and a 3% sales tax.
As gold prices keep climbing, smugglers are making bigger bucks, a Mumbai-based senior bullion dealer told Reuters, adding that the payoff is now ‘super tempting’ for them.
Shashi Mathews, Partner at CMS INDUSLAW told ET Online, “While gold duties have been lowest for a while, we must note that this has been largely so to curb smuggling and keeping the rates at par or at least around the global prices.” Though these measures have “failed” to curb smuggling as can be seen from the various cases of gold smuggling across Indian ports, he said.
With smuggling on the rise again and industry voices growing louder for further reduction to 3%, the customs duty on gold, has come back into focus, ahead of discussions on its impact on consumers.
The effect on gold prices
Gold demand in India is quite closely tied to import duty changes, particularly at current elevated price levels. The 9% import duty cut during July 2024 led to a 5% dip in domestic gold prices and a 10% surge in gold jewellery volumes in Q2 FY2025 on a YoY basis, Kinjal Shah, SVP and Co Group Head, ICRA, told ET Online.
However, this was quickly offset by a continued rally in international gold prices, resulting in a 40% increase in domestic gold prices and more than 11% domestic gold jewellery volume decline in the second half of FY2025 on a YoY basis.
“Nevertheless, the domestic gold jewellery consumption saw a lower decline of about 7% vis-à-vis a 15% contraction in global demand in FY2025, which is partly attributable to the customs duty cut.”
In the first eight months of FY2026, gold prices are already 41% higher than FY2025 average, which could lead to a more than 20% contraction in gold jewellery volume in FY2026, as per ICRA forecasts.
While further duty cuts could marginally lower prices, their impact is likely to be “short-lived” unless global prices stabilise, Shah said. “Gold prices would thus be more influenced by international trends than by duty reductions alone.”
Senco Gold’s MD & CEO, Suvankar Sen said, with gold prices expected to remain elevated, the industry looks forward to policy measures that further enhance affordability and support demand stability.
“In this context, steps that strengthen competitiveness, including a review of the current 6% import duty, along with focused vocational training for karigars, greater adoption of technology, and appropriate flexibility for SEZ units to serve domestic demand, would further reinforce the organised jewellery sector’s contribution to employment, consumption and exports.”
On similar lines, Mangesh Chauhan, Managing Director of Sky Gold & Diamonds, a key partner to Tanishq, Kalyan Jewellers and Malabar Gold & Diamonds, told ET Online that a key priority in this budget is rationalising import duties on gold, silver, platinum, coloured gemstones and other essential inputs. “Lower duties will ease manufacturing costs, improve pricing for exporters, and help Indian producers compete more effectively in global markets. Simplification of customs procedures through faster clearances, risk-based checks, and digital documentation would reduce delays and lower logistics costs for exporters.”
India Budget: Cut or no cut?
Even as the demand and debate continues, multiple industry experts have ruled out dramatic rate cuts on the precious metal in India’s Budget 2026.
Major duty cuts like the one in Budget 2024 are unlikely to be repeated soon unless there’s a compelling reason, said Rahul Kalantri, Vice President, Commodities at Mumbai based Mehta Equities. “We are expecting that the duty is to remain broadly unchanged in the current fiscal outlook, especially with the current account deficit under close watch.”
Echoing a similar opinion, Niladri N Bhattacharjee, Partner and Metals & Mining Industry Leader, Grant Thornton Bharat, said India may not have head-room at this point to reduce the cuts. Gold prices rose far higher than most other investment options, except silver, he stated, adding that while India imported about 5% less gold by volume between FY24 and FY25, the value of these imports jumped by over 25% because of higher prices. “At the same time, gold jewellery exports rose by only about 20%.”>
