Why Govt Should Hike Customs Duty on Gold, Vegetable Oils

In July 2024, the government sharply reduced the total Customs duty on gold import from a high of 15% to 6%, comprising 5% basic customs duty and 1% agri infra development cess, providing a major boost to import of the yellow metal. The precious metals trade hailed the move as a major reform, although there was no official justification for the duty reduction that involved huge revenue sacrifice.  

That gold is a demerit commodity is well-recognised. India spends enormous amounts of precious foreign exchange every year to import gold. From 678.3 tonnes worth $35 billion in 2022-23, imports surged to 748.3 tonnes valued at $42.6 billion the following year, and then on to set a new record of $58 billion (757 tonnes) in 2024-25— the result of duty reduction.

In the first six months of 2025-26, gold import totaled 300 tonnes worth $ 26.5 billion. Interestingly, and in a way shockingly, India's gold imports in October 2025 surged to $ 14.7 billion, nearly tripling from $ 4.9 billion in October 2024. It was said to be driven by high festive season demand amid record global prices. This massive spike (165 tonnes) contributed to a record monthly merchandise trade deficit of $ 41.7 billion and put considerable pressure on the rupee.

Anecdotal reports suggest a contraction in physical demand for gold for jewellery. Weak demand has meant many jewellers are now selling gold ornaments at a discount to current prices. The obvious demand destruction follows rising gold prices in the global market and rapidly depreciating rupee that makes import more expensive. 

One estimate suggests approximately 30% of gold demand is for jewellery and related items while as much as 70% is ‘investment’ demand, a euphemism for speculative investment. In other words, the average middle-class families that buy gold jewellery have suffered because of high prices, while ‘investors’ have benefited by treating gold as a financial instrument.       

The government must feel rather concerned about the ballooning trade deficit and currency depreciation contributed by massive import of less-essential goods like gold. 

In the upcoming Union Budget 2026-27, it is imperative for the finance minister to consider strategies to contain the expanding trade deficit, stabilise the currency and focus on debt-to-GDP ratio. 

One way to achieve the aforesaid multiple objectives would be to restore status quo ante as far as gold import duty is concerned. Hiking import duty on gold back to 15% would be an easy win for the government. It will help fill the coffers with additional revenue for the exchequer. As a major importer of gold, India must use its import power.  

Of course, there would be arguments against duty hike. One favourite argument is that higher duty would encourage smuggling. This is a specious argument because our border control, surveillance and anti-smuggling initiatives are more modern and technology driven than they were say a few decades ago. ‘Smuggling’ is a bogey the trade raises often. Those who claim smuggling must be asked to prove.

Vegetable Oil
To meet the widening domestic supply shortfall, India imports annually 15-16 million tonnes of various oils—palm, soy, sun—valued at $17-18 billion. At the same time, domestic oilseed growers face weak prices, lower than even the minimum support price. This is an anomalous situation and demands a remedy with appropriate fiscal and trade policies.

Strangely, with effect from June 1, 2025, the government reduced the basic customs duty on various crude vegetable oils from 20% to 10%. The finance ministry sought to justify the duty reduction by stating in the Lok Sabha that the objective behind the reduction of duty was to create a balanced environment where domestic refining is enhanced, consumer prices are reduced and farmers continue to receive fair compensation for their produce.

Additionally, the government asserted that the duty reduction was aimed at higher utilisation of domestic refineries and promoting local edible oil refining industry.

In the premise, the justification is flawed and there is no empirical evidence that the objectives have been achieved. Policy priority is to support domestic consumers and oilseed growers. Lowering import duty has resulted in higher import of finished product while the country’s primary producers have suffered weak prices and poor market opportunity. 

The finance minister should hike basic customs duty on gold and crude vegetable oils to restore status quo ante, and initiate a system of close monitoring and regulation.