Why Modi Asked Indians to Stop Buying Gold
India spent a record $72 billion importing gold in FY26, and in May the Prime Minister asked households to hold off for a year. What he said, what the duty hike did, and why the lasting fix is getting existing gold to move.
Summary
- On 10 May 2026 the Prime Minister asked Indians to avoid buying gold jewellery for a year, and three days later the effective import duty went from 6% to 15%.
- The target is the external account: gold imports reached a record $71.98 billion in FY26 as oil prices spiked and reserves fell, though the tonnage actually dropped.
- A higher duty taxes demand and feeds smuggling; the durable answer is to put India's household gold back into circulation, which no scheme has yet done at scale.
What the Prime Minister actually said
The remark came at a BJP event in Hyderabad on Sunday 10 May 2026. In the translation Bloomberg carried, Narendra Modi asked that for one year people not buy gold jewellery for any function, whatever the occasion. That request sat inside a longer list. He also asked people to use less fuel, skip non-essential foreign trips, work from home where they can and buy Indian goods, and he framed all of it as saving foreign exchange.
Two points of precision matter. It was an appeal, not a rule: nobody is barred from buying gold, and jewellers remain free to sell it. And it was aimed at purchases, not at gold people already own. He repeated the message in early September, asking people to avoid non-essential gold buying, which suggests the government sees the pressure as lasting beyond one season.
Why gold, and why now
India mines almost no gold, so nearly every gram bought here is paid for in dollars. In a normal year that is a known cost. In spring 2026 it collided with a war in West Asia, disruption around the Strait of Hormuz and crude that climbed from about $70 a barrel to near $126 at its peak, which pushed up the oil bill at the same moment.
The external-account numbers behind the appeal
| Indicator | Figure | Period |
|---|---|---|
| Gold imports, value | $71.98 billion, up 24% | FY26 |
| Gold imports, volume | 721 tonnes, down from 757 | FY26 vs FY25 |
| Merchandise trade deficit | $333.2 billion | FY26 |
| Foreign exchange reserves | $728.5 billion to $690.7 billion | 27 Feb to 1 May 2026 |
| India gold demand, value | ₹2,275 billion (about $25 billion), a record | Q1 2026 |
| Bars and coins, share of demand | 52%, highest on record | Q1 2026 |
The detail that most coverage missed is in the second row. Indians bought fewer tonnes in FY26, not more. The import bill rose because the average price paid rose by about 30%, from roughly $76,600 a kilo to $99,800. That changes the policy question. A household asked to buy less gold is already buying less gold; the leak is the price.
Set $72 billion of gold against a $333 billion goods deficit and it is more than a fifth of the gap. Oil is larger, but oil runs trucks and factories. Gold is the biggest import the government can plausibly ask people to postpone, which is why it was named.
A household asked to buy less gold is already buying less gold; the leak is the price.
What the duty change did
On 13 May the Finance Ministry raised basic customs duty on gold and silver from 5% to 10% and the agriculture cess from 1% to 5%, through Notifications 15 to 18 of 2026. The effective rate moved from 6% to 15%, which the World Gold Council describes as the largest single increase on record and a full reversal of the July 2024 cut. The advance authorisation route used by exporters was capped at 100 kg.
Import duty on gold, before and after the May 2026 notifications
| Component | Before 13 May 2026 | From 13 May 2026 |
|---|---|---|
| Basic customs duty | 5% | 10% |
| Agriculture infrastructure and development cess | 1% | 5% |
| Effective import duty | 6% | 15% |
| GST on the landed value | 3% | 3% |
The price did not jump by nine points. The WGC found MCX spot rose only 4% to 6% after the hike, and the local price swung to a discount of nearly $150 an ounce against the international rate, from about $14 before. Dealers had stock bought at the old duty, the season was quiet, and some sellers wanted cash.
The WGC's own forecast is a fall of 50 to 60 tonnes in jewellery and bar and coin demand for 2026, about 10%. Q2 bore that out in volume, at 131 tonnes, while spending still hit a record because of price. Net bullion imports in the quarter fell 22% to 98 tonnes.
The problem with a 15% duty: smuggling
Every duty hike in India has a second effect that shows up later. The WGC measured a positive correlation of 0.52 between the duty rate and unofficial inflows. After the 2013 hike smuggled gold rose about sevenfold within a year; after the 2022 increase it went from roughly 17 to 50 tonnes.
The logic is simple. At 15%, a kilo brought in without paying duty saves the carrier more than ₹20 lakh at current prices. That margin pays for a lot of risk. By late August, Outlook Business reported the government was weighing a return towards 6%, with industry arguing that the hike had moved trade into the parallel market. No decision had been announced when we wrote this.
Our view: a duty high enough to change behaviour is also high enough to reward evasion. The hike buys time for the rupee, but every tonne that moves from the formal to the grey market is lost GST, lost traceability and a step back from the formalisation that hallmarking was meant to deliver.
The state is buying while households wait
There is an apparent contradiction here. Since March 2023 the Reserve Bank has moved 274 tonnes of its gold home from overseas vaults, and by March 2026 it held 880.52 tonnes, 77% of it in India. The state clearly values gold.
The difference is where the dollars go. When a family buys a necklace, foreign exchange leaves to pay for metal that then sits in a cupboard. When the RBI shifts its reserve mix or brings bars home, the country's assets change form but do not shrink. Asking households to wait while the central bank adds to its own holdings is consistent once you separate the balance of payments from the balance sheet.
The lasting fix: get existing gold to move
The WGC estimates Indian households hold about 25,000 tonnes. In 2024 only 114 tonnes came back as recycled supply. If even a small fraction of that stock re-entered the market each year, the import bill would fall without anyone being asked to skip a wedding.
Rebuild gold monetisation
The Gold Scheme was meant to do this and did not. It had gathered about 31 tonnes by November 2024, and the government shut its medium and long-term deposits in March 2025. The design asked families to hand over jewellery to be assayed and melted, for a modest return, through bank branches. That is a hard sell for heirloom gold. Any second attempt needs jewellers as collection points, returns that track the gold price, and a route that does not require melting everything.
Formalise recycling
India already has the refining capacity: about 1,800 tonnes a year across 33 formal refineries in 2021, by WGC's count. What it lacks is organised collection. In 2021 roughly 60% to 65% of scrap still moved through unorganised hands. Branded exchange programmes, which the WGC says made up as much as 70% of sales at some retailers in Q2 2026, are the most practical channel. We cover the mechanics in urban mining and gold recovery and the refinery side in India's gold refineries and GIFT City.
Use the bullion exchange properly
The India International Bullion Exchange at GIFT City, open since July 2022, was built for transparent and formal import. Its volumes stalled in FY26 over a dispute on import quotas. Making it the default route for large importers would tighten pricing and shrink the grey market, but only once the quota question is settled.
What this means for jewellers, MSMEs and investors
- Small and mid-sized jewellers carry the most risk: expensive inventory, thin margins and customers who can now see a discount to the international price. Shorter inventory cycles and exchange-led sales matter more than volume this year. Our MSME piece on gold sets out the options.
- Organised chains are better placed, because trust brings in old gold and exchange programmes turn it into new sales without fresh imports.
- Refiners and recyclers gain if policy tilts towards domestic scrap, but they depend on collection they do not control.
- Investors should treat the duty as a live variable. A cut back towards 6% is under discussion, and a business case that only works at 15% is a bet on a policy, not on demand. That is worth testing in diligence before committing capital.
A business case that only works at 15% duty is a bet on a policy, not on demand.
What we would watch next
Three things will decide whether May 2026 is remembered as a turning point or a detour. First, whether the duty stays at 15% or is trimmed to take the air out of smuggling. Second, whether a redesigned monetisation scheme appears, with jewellers in the chain. Third, whether recycled supply rises as prices stay high, or whether households keep holding, as the WGC saw in Q2 when recycling fell to an eleven-quarter low.
For businesses in the gems and jewellery chain, the useful stance is to plan for both duty outcomes and build the parts of the model, exchange, recycling and clean books, that work under either.
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