India’s tax hike drives illegal gold imports to 3-year high

India's illegal gold imports reached their highest level since 2023 in the third quarter, increasing by over 1,500% from the previous year, according to a report from the World Gold Council. The informal shipments of gold during July to September rose to 50 metric tons, compared to just 3 tons a year earlier, as cited by Metals Focus.

The report did not specify how the trade is tracked, but such imports usually bypass official duties through methods like smuggling or small quantities brought in by individuals. Tax hikes on gold and silver imports, which were increased to 15% earlier this year, have historically boosted the incentive for illegal imports. The surge in informal gold imports is a response to India's government efforts to curb purchases amid a growing trade deficit caused by rising energy prices.

Indians purchase gold for various reasons, including celebrations, gifts, and family savings. With limited domestic production, most of the demand is met through imports, putting a significant strain on the trade bill and the currency. The tax increase has also led to more Indian households resorting to under-the-counter cash sales, where gold and jewelry are traded without traceable invoices.

While gold demand, encompassing jewelry and investments, increased from the previous quarter, most indicators suggest a decline compared to the same period last year. Jewelers, however, are delaying purchases due to concerns that prices have further to fall. Gold prices dropped by 6.8% in October and fell below the $4,000 per ounce mark, remaining below this level since.