Budget 2026: Smugglers Earning ₹1.15 Million Per Kg as Gold Prices Surge, Policy Gains at Risk

With the Union Budget just days away, soaring gold prices have emerged as a key concern for policymakers, consumers, and the bullion industry alike. Finance Minister Nirmala Sitharaman is set to present Budget 2026 on February 1, amid growing debate over whether the government should once again cut import duties on gold to curb smuggling and ease domestic prices.

Gold prices have witnessed an extraordinary rally over the past year. In 2024, gold prices jumped by nearly 67 percent, and so far in 2025 they have risen by another 11 percent. This sharp escalation has effectively neutralized the impact of the significant customs duty cut announced in July 2024, when the government reduced the basic customs duty on gold from 15 percent to 6 percent.

Global Rally Fuels Domestic Pressure

Despite volatility in equity markets last year, gold delivered its strongest annual performance since 1979. In 2025, the precious metal shattered multiple records, driven by global investors seeking safe-haven assets, interest rate cuts in the United States, and a weakening US dollar. International gold prices surged 67 percent year-on-year, touching a record $4,549.7 per ounce on December 26, and are now approaching the $5,000 per ounce mark.

This global rally has pushed domestic prices sharply higher, making gold a sensitive political and economic issue ahead of the budget.

India’s Deep-Rooted Gold Affinity

India’s appetite for gold remains unmatched. According to Morgan Stanley estimates, Indian households collectively hold around 34,600 tonnes of gold, valued at approximately $3.8 trillion—more than the combined gold reserves of the central banks of the US, Germany, Italy, France, Russia, and China.

With a population of about 1.4 billion, this translates to an average holding of 25 grams of gold per person, currently worth over $3,250. This deep cultural and financial attachment makes Indian consumers extremely sensitive to price fluctuations.

Smuggling Back in Focus

While the 2024 duty cut initially helped reduce gold smuggling in India—the world’s second-largest gold consumer—the recent price surge has once again made illegal imports lucrative. Authorities have foiled several smuggling attempts at airports in recent weeks, indicating a resurgence of the problem.

Industry sources say smugglers are exploiting the price differential by evading 6 percent customs duty and 3 percent sales tax, earning profits of more than ₹11.5 lakh per kilogram of gold. A Mumbai-based bullion dealer noted that as prices rise, the incentives for grey-market operators grow even stronger.

Calls for Further Duty Cuts

Legal and industry experts warn that existing measures are failing to deter smuggling. Shashi Mathews, Partner at CMS INDUSLAW, said that despite historically low duty rates, gold smuggling continues to surface at Indian ports, suggesting the need for a policy rethink. The industry has renewed its demand to reduce customs duty further to 3 percent.

However, analysts caution against expecting major relief in Budget 2026.

Limited Room for Policy Maneuver

Explaining the demand–duty relationship, Kinjjal Shah, Senior Vice President and Co-Group Head at ICRA, said the 9 percent duty cut in July 2024 led to a 5 percent drop in gold prices and a 10 percent rise in jewellery sales in the second quarter of FY25. But the impact was short-lived, as global price pressures soon dominated.

In the second half of the year, gold prices surged 40 percent, while jewellery sales fell by over 11 percent. Shah emphasized that any further duty reduction may offer only temporary relief, as international trends play a far bigger role in price movements.

Echoing this view, Rahul Kalantri, Vice President (Commodities) at Mehta Equities, said a major cut in customs duty is unlikely, especially with the government closely monitoring the current account deficit. Niladri N. Bhattacharyya, Partner at Grant Thornton India, added that India may have limited fiscal space for further cuts, noting that while gold import volumes fell nearly 5 percent between FY24 and FY25, their value jumped by over 25 percent due to higher prices.

As Budget 2026 approaches, expectations of a dramatic policy intervention on gold remain muted. For now, the relentless rise in global prices threatens to undo earlier gains, keeping smuggling profitable and gold affordability under pressure for Indian consumers.