India's bullion market is showing clear signs of distortion as smuggled gold inflows rise sharply, a trend industry watchers trace directly to the May 2026 hike in gold import duty to 15%. The higher tariff has widened the price gap between legal and illegal gold, making grey-market supply significantly cheaper than gold brought in through official, duty-paid channels.
That gap is now squeezing legitimate dealers and jewellers who continue to operate within the formal, tax-compliant system, putting them at a real competitive disadvantage against untaxed, undocumented gold entering the country.
The Widening Price Gap Fueling the Grey Market
At the center of the problem is a stark and growing arbitrage opportunity that makes smuggling financially attractive:
Smuggled gold is currently selling at a discount of up to ₹8,000 per 10 grams compared with officially imported, duty-paid gold, a gap wide enough to draw both suppliers and buyers away from legal channels
Industry executives describe this price differential as unmistakable evidence of an active and expanding grey market operating in parallel with the formal bullion trade
The financial disadvantage falls squarely on genuine bullion dealers and organised jewellers, who pay full import duty and applicable taxes and therefore cannot match the pricing offered by sellers of undocumented gold
This dynamic risks eroding trust in the formal supply chain over time, as price-sensitive buyers are drawn toward cheaper, untraceable sources
The Scale of Illegal Inflows and India's Widening Import Bill
Beyond the price gap, the sheer volume of gold believed to be entering India illegally underlines the scale of the challenge:
Industry estimates suggest more than 100 tonnes of gold could flow into India through illegal channels in 2026 alone, a pattern that mirrors past surges in smuggling activity that followed earlier rounds of import duty increases - suggesting this is a recurring, predictable market response rather than an isolated event
At the same time, India's official gold import bill rose 24% year-on-year to a record $71.9 billion in FY26
Notably, this record spending came even as the physical volume of gold imported fell to approximately 721 tonnes - a combination that points to persistently strong underlying demand for gold that is only partly being satisfied through official, duty-paid imports, with the shortfall likely being met through unofficial and illegal routes
Enforcement Agencies Respond
In response to the rising smuggling activity, India's revenue intelligence apparatus has stepped up its enforcement posture:
The Directorate of Revenue Intelligence (DRI), in particular, has intensified operations specifically targeting organised gold smuggling networks
These enforcement efforts span multiple entry points and routes, including airports, land borders, coastal routes, and domestic road transport networks used to move smuggled gold once it enters the country
The combination of a lucrative price gap, rising import volumes through unofficial channels, and a record-high but volume-declining official import bill paints a picture of a bullion market under real structural strain - one where policy intended to manage the trade balance may be inadvertently pushing a meaningful share of demand underground.