Budget 2026 Expectations: Fewer Customs Duty Slabs on Gold, Simpler Tariff Structure in Focus

Gold continues to hold a unique and powerful position in India’s financial system, combining economic scale with deep cultural relevance. With India’s GDP estimated at around $4.18 trillion, the value of gold held by Indian households, estimated at nearly $4 trillion at current prices, stands almost on par with the country’s annual economic output. Few assets exert such influence across savings behaviour, external balances, and policy formulation.

As expectations build ahead of the Union Budget 2026, gold policy appears to be entering a phase of relative stability, with market participants anticipating rationalisation rather than aggressive intervention.

Gold Policy at an Inflection Point​

For decades, gold has served Indian households as a preferred savings avenue, a hedge against macroeconomic uncertainty, and a dependable form of collateral. Policymakers, however, have often viewed gold through the lens of external vulnerability, leading to repeated fiscal and administrative measures.

Over the past ten years, policy efforts around gold have focused on balancing three core objectives:

1. Moderating gold imports
2. Formalising the gold market
3. Promoting financial alternatives to physical gold

With partial progress achieved across these fronts, the scope for disruptive policy action appears limited. The prevailing environment points towards consolidation rather than correction.

Import Duties: From Control to Consolidation​

Customs duties have historically been the primary lever used to influence gold demand. During periods of heightened macroeconomic stress, particularly between 2012 and 2014, import duties were raised sharply to curb inflows and protect the current account. While effective in the short term, these measures also triggered unintended outcomes such as higher smuggling and distortions between domestic and global prices.

The more recent reduction in gold import duties marked a decisive policy shift. Lower effective rates improved compliance, reduced unofficial trade, and restored transparency across the gold value chain. This adjustment also eased consumer burden and helped limit the government’s exposure under the Sovereign Gold Bond programme. With these changes now absorbed, import policy appears to have entered a holding phase.

Rupee Weakness, CAD, and the Reality of Gold Imports​

Year to date, India’s gold imports are estimated at around $51 billion, reflecting a 16 percent year on year increase in value terms. However, import volumes have declined by about 12 percent year on year to roughly 559 tonnes, underscoring the impact of elevated global gold prices.

While higher dollar outflows could raise concerns around the current account deficit, the underlying data tells a more balanced story. The decline in volumes points to lower real consumption, with the increase in import value driven largely by price appreciation rather than excess demand. This distinction is critical to avoid misinterpretation and unnecessary policy tightening.

Lessons from Past Policy Missteps​

Historically, gold has faced scepticism from mainstream economic thinking, often being portrayed as unproductive or symptomatic of economic backwardness. Excess household demand for gold was frequently blamed for foreign exchange pressures and perceived to constrain development.

Despite repeated attempts to suppress demand, household balance sheets consistently recorded rising gold holdings. The sustained rally in gold prices has further highlighted the strategic strength embedded in India’s aggregate gold reserves, reinforcing the limitations of restrictive policies.

Case for Further Customs Duty Rationalisation​

Looking ahead, if India aims to strengthen its position in global gold markets, there remains room to further rationalise customs duties. Aligning domestic prices more closely with global benchmarks could reduce distortions and discourage informal trade.

Market participants widely expect the Union Budget to evaluate a gradual reduction in customs duty, potentially from the current 6 percent to around 4 percent. Such a move would signal policy consistency, support market depth, and advance India’s longer-term ambition of participating meaningfully in global gold price discovery.

Roadmap for a Globally Relevant Gold Market​

Earlier recommendations by the Committee on Capital Account Convertibility outlined a clear framework for gold market liberalisation. The approach emphasised integration with financial markets, transparency, and broad-based participation, drawing lessons from international models.

Key pillars highlighted included:

• Removal of restrictions on gold imports and exports
• Development of gold-linked financial instruments
• Creation of efficient markets for physical and financial gold
• Wider participation by banks and non-bank institutions

Mobilising privately held gold through market-driven mechanisms was seen as central to improving external resilience.

From Price Taker to Price Influencer​

For India to influence global gold markets rather than merely track them, policy focus must shift towards:

• Freer movement of gold imports and exports with minimal distortions
• Rationalisation or removal of additional taxes and levies
• Mobilisation of household gold wealth into formal circulation
• Rethinking revenue models, as customs duties contribute marginally to fiscal consolidation

Over time, revenues could be generated through structured participation frameworks for global bullion players rather than through import barriers.

Channelling Gold into Productive Use​

Rather than discouraging gold ownership, policymakers and the Reserve Bank of India should prioritise mechanisms that redirect household gold savings into productive channels.

Gold ETFs have already played a meaningful role by offering dematerialised exposure and integrating gold into mainstream financial portfolios. Further momentum could be achieved through targeted incentives such as tax relief on investments or rationalisation of GST on gold-linked financial products.

Will Budget 2026 Deliver Clarity?​

Structural reforms in gold policy will take time, but continued delays risk compounding inefficiencies. Incremental yet decisive steps could position India to capitalise on its scale, demand, and financial infrastructure to emerge as a global gold trading hub.

All eyes now turn to Budget Day, when Finance Minister Nirmala Sitharaman presents the Union Budget. Until then, the gold market and the broader economy remain watchful, awaiting signals that could shape the next phase of India’s gold policy journey.