India’s passion for gold has just become a lot more pricey. The country’s gold import bill in FY25-26 reached about $72 billion, a figure that is sending jitters among economists and officials. But this huge expenditure is not simply about glittering jewellery, or holiday stocks – it is widening the current account deficit, squeezing foreign exchange reserves and drawing attention to more fundamental problems in India’s trade balance. What does this mean for an economy already struggling with inflation and slow exports, with global gold prices hovering at record highs and domestic demand showing no signs of cooling? Let’s break this down.
How big was the surge? Numbers that count
India’s gold imports touched a startling $71.8 billion in 2025-26, up substantially from $55.4 billion in the previous year. That’s not a blip, it’s a 30% spike that outpaces growth in many other areas. Figures from the Directorate General of Foreign Trade showed that physical gold shipments alone exceeded 1,200 tonnes, with refined and semi-processed forms making up the bulk.
Why the blast? Festival seasons like Diwali and wedding peaks led retail demand, but that’s just part of the story. Central banks the world over including India’s Reserve Bank bought over 100 tonnes for reserves against a backdrop of geopolitical worries – consider current Ukraine tensions and Middle East flare-ups. Investment demand via ETFs and sovereign gold bonds also soared as investors sought safe havens against volatile markets and a falling currency.
Key drivers in figures:
Physical demand: 850+ tons for jewellery & bars.
Central bank buying: 108 tons, largest for RBI since 2022
ETF inflows $2.5 billion, double that of 2024-25.
India has been to the gold rodeo before. Imports hit $54 billion in 2013 and caused a currency crisis. History feels eerily identical now, but the stakes are bigger.
Why Indians Can’t Quit Gold: The Economics And Culture
In India, gold is not only a metal but a part and parcel of the social fabric. A bride’s mangalsutra, a newborn’s first gift, Diwali coin exchanges: these rituals assure perennial demand. Industry projections put marriages in 2025-26 at more than 10 million, with an average gold spend of 500 kilos per family. Rural areas accounted for a further 40% of consumption, while gold also serves as a savings strategy given the fragile access to banks.
It’s an economic hedge. Gold’s 25% global price surge attracted purchasers with inflation at 5.5% and equity markets turbulent (Sensex up just 8% YTD). The rupee’s 4% fall versus the dollar has made costs dearer, with every ounce a costlier proposition. Ironically it is the urban millennials who are leading the change. Digital gold apps like Paytm and PhonePe showed 60% user growth, which made it possible to buy on impulse.
But can this passion last? India’s informal credit market has a significant dependence on gold, with rural people holding 60% of the 25,000 tonnes of gold stockpiled in the country. It bites most when prices fall, as in 2013. Alternatives have been promoted by policymakers. Gold monetisation programs have flopped fetching only 20 tons since 2015. What if digital rupees or mutual funds could take the people off the yellow gold.
The Deficit Dilemma: The Importance of Gold Imports
Enter the current account deficit (CAD), India’s economic achilles’ heel. The CAD ballooned to 2.8% of GDP in 2025-26 from 1.9% last year with gold sucking out $72 billion in FX. That’s around 15% of all merchandise imports vs oil’s $120 billion share when adjusted for value.
India’s trade deficit widened to $280 billion, with a surplus in services (IT and remittances at $150 billion) providing only a marginal cushion. A strong dollar, Fed rate reduction on hold and China’s export supremacy impacted India’s non-gold exports like textiles and medicines.
The misery of gold: Not needed, not producing. Gold doesn’t hum like factory machinery, it just sits in lockers, not making anything. “Leakage” brings to mind the 1991 crisis, when the gold promises to the IMF came to the rescue. Finance Minister Nirmala Sitharaman today signalled import limitations but quotas could encourage smuggling, already around 150 tonnes a year over porous borders.
Global Gold Fever: India’s Plight in Context India is not alone. Figures from the World Gold Council show global demand for gold exceeded 4,900 tonnes in 2025, with 1,100 tonnes taken by central banks, the fifth consecutive year of net buying. China led with 300 tonnes, followed by Russia and Turkey, all diversifying away from dollar assets despite US sanctions threats.
Geopolitics made things worse. Gold became “the anti-dollar” due to US-China trade spats, Europe’s energy crises and BRICS’ de-dollarization negotiations. India finds irony in rupee trade with Russia for oil: gold imports hurt Atmanirbhar Bharat self-reliance ambitions
Government Moves: Duties, Bonds and Bold Experiments
New Delhi strikes back. The Budget 2025 has increased the import duty to 15% and this is expected to generate revenues of ₹45,000 crore. The impact on volumes is expected to be minimal since smugglers have adapted to the situation with the use of cryptocurrency payments and drone drops . Sovereign Gold Bonds (SGBs), paying 2.5% interest, absorbed 50 tons but redemptions are coming in 2028.
RBI’s gold reserve plan pays: Holdings reach 800 tonnes ($60 billion), boost confidence Free trade deals with UAE offer some relief by cutting taxes on 200 tons a year. Longer term, the Centre is looking at recycling. If scaled, urban mining from e-waste can deliver 100 tonnes annually.
The challenges remain. 90% of jewellery to be covered by hallmarking rules by 2026. Tackling fakes, but expenses to go up. Can India emulate Turkey’s 20% import tax that cut volumes in half? Or copy China’s quest for home-grown production?
Ripple Effects: Rupee to Retail Prices
And the fallout goes on. Gold prices are rising and that’s making weddings costlier. The average cost of a wedding has gone up by 18 per cent to ₹25 lakh, pinching the middle class. Jewelers See 10% Drop in Q4 2025 Sales as Shoppers Downsize Inflation creeps in: 15% of NBFC books are gold-linked loans that can turn NPAs if prices correct
The exporters win on the other hand. Gems and jewelry saw $40 billion in earnings from 5 million, spurred by demand worldwide. While MSMEs complain of loan crunch, Surat, Jaipur and other such regions are booming.
It’s a mixed bag for investors. Gold mutual funds gave 18%, topping fixed deposits, but volatility hurts – October’s 5% fall wiped over Rs 10,000 crore in paper wealth.
India’s Gold Rush: $72 Billion Import Surge Raises Deficit Fears in 2025-26
