- Government has raised import duties to curb dollar outflow and rupee weakening.
Buying a gold ring or just a pair of earrings for someone you love can feel like the simplest of gestures. You go to a jewellery shop, pay, and walk out with something meaningful. But that small physical gold purchase carries a financial weight that stretches across continents, moves the US dollar, and shows up in India’s economic reports.
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India’s Gold Habit, By the Numbers
India is the world’s second-largest consumer of gold, behind only China. In 2025-26, the country’s gold imports hit an all-time high of $71.98 billion, roughly ₹6 lakh crore, according to Commerce Ministry data. Gold now accounts for nearly 9% of India’s total import bill, making it the second-largest import after crude oil.
Why Gold Price in India Is Linked to the Dollar
Gold is bought and sold globally in US dollars. Whether it is mined in Australia, refined in Switzerland, or purchased in Ahmedabad, its price is fixed in dollars on international markets, primarily the London Bullion Market and the COMEX in New York.
Even when an Indian buyer pays in rupees at a local shop, the gold that eventually reaches them was purchased in dollars somewhere up the supply chain.
Who Imports Gold in India
Indian buyers do not directly import gold from abroad. That is done by nominated agencies like large banks (SBI and HDFC, etc.), and a few government-authorised trading houses. These are permitted by the RBI to buy gold from international suppliers. To pay for that gold, they first buy US dollars in the forex market using Indian rupees. This is how a gold purchase in India ultimately turns into a dollar transaction.
How Gold Imports Affect the Indian Rupee
When gold imports rise sharply, demand for dollars increases so India can pay for that gold. As the demand for dollars increases, the value of the dollar rises compared to the rupee. This makes the rupee weaker. The RBI sometimes steps in during these periods and sells dollars from its own reserves to prevent the rupee from falling too fast. This comes with a problem; it decreases the very reserves that act as a buffer for India’s economy.
To deal with this problem, successive governments have tried to reduce this dollar outflow by making gold imports more expensive. The import duty on gold was just ₹300 per 10 grams before 2012. By 2013, the duty had been raised to 6%. By 2022, the total duty had climbed to 15%. Last year’s Union Budget cut it back sharply to 6%, a decision that has since contributed to the record import bill.
At today’s price, 10 grams of 24-karat gold costs roughly ₹1,52,000 at a jewellery counter. Of that, approximately ₹12,700, nearly 8.4% of what you pay, goes directly to the government as customs duty and GST.
How Does Gold Affect the Current Account Deficit
The real macroeconomic damage shows up in the Current Account Deficit, or CAD. It is the gap between what India earns from other countries and what it spends on other countries. This gap widens as gold imports surge.
The worst case on record was 2012-13. That year, India’s gold demand surged to 975 tonnes. The CAD hit a record 4.8% of GDP, equivalent to $87.8 billion. Foreign investors grew nervous about India’s ability to finance this gap. The rupee crashed to 68.7 against the dollar, a historic low at the time. The government responded with emergency import curbs and duty hikes mentioned above. Gold imports were a central cause of this economic crisis.
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Why the RBI Is Increasing Its Gold Reserves
On a separate note, India’s central bank has itself been increasing its gold holdings. As of March 2026, gold accounts for 16.7% of the RBI’s total foreign exchange reserves, up from 13.92% six months earlier. Central banks globally have been accumulating gold as a hedge against global volatility. The logic might be different to consumer demand, but it is a sign that gold’s appeal is not lost for institutions either.
Buying gold is not a bad decision. But it is never just a personal one. Every purchase feeds a dilemma that India has not yet resolved, between its oldest savings habit and the demands of a modern economy.
