Prof Virender Koundal
virender_koundal@rediffmail.com
India’s perennial fascination with gold is no secret. From weddings and festivals to investment hedges and family heirlooms, gold plays a deep cultural and financial role in households across the country. Yet behind this glittering demand lies a macroeconomic challenge of mounting significance: the growing import of gold is creating headwinds for India’s balance of payments (BoP), trade deficit and external-sector stability.
Recent data show a dramatic exacerbation of the trend. According to the Ministry of Commerce & Industry, India’s gold imports jumped about three-fold in October 2025, reaching US $14.72 billion, up from US $4.92 billion in October 2024. On a cumulative basis for April to October (2025-26 fiscal) the gold-import bill rose by 21.44 per cent to US $41.23 billion, up from US $34 billion a year ago. Moreover, the surge in gold imports coincided with the trade deficit in October 2025 widening to a record US $41.68 billion. The precious metal accounts for over 5 per cent of India’s total merchandise imports. The largest source of gold imports is Switzerland (about 40 per cent share), followed by the United Arab Emirates (over 16 per cent) and South Africa (about 10 per cent). Imports from Switzerland alone rose 403.67 per cent to US $5.08 billion during that month. In short, India is importing huge volumes of gold, at high values, contributing significantly to the import bill and the widening trade deficit.
The October 2025 spike was largely attributed to increased festival and wedding demand, according to the Commerce Secretary. In India, gold purchases around Diwali, Dhanteras, and the wedding season constitute a large chunk of annual jewellery and bullion demand. Gold remains a popular investment and safe-haven asset in India. When global uncertainty, inflation or rupee weakness arises, many households shift savings into gold. A recent commentary noted that higher gold prices distort the trade balance because they increase the value of imports.
When the Indian rupee depreciates, gold imports become costlier in rupee terms, pushing up the value of the import bill. Empirical study shows gold prices in India are strongly influenced by rupee dollar movements. Domestic gold production in India is negligible. As pointed out by the NITI Aayog’s “Transforming India’s Gold Market” report, India is highly dependent on imported gold to meet domestic demand. While demand for gold is strong, the export of jewellery (which could offset some import value) has faced headwinds e.g., in a recent month gem and jewellery exports fell 29.5 % year-on-year to US $2.3 billion.
When physical goods imports (like gold) rise sharply without a matching rise in exports, the trade deficit widens. In October 2025, exports fell while imports rose sharply, with gold being a major contributor. A wider merchandise trade deficit puts pressure on the overall current-account balance. While goods trade is one component, the current account also includes services, income payments and transfer flows. Higher gold imports inflate the goods import side; unless offset by strong exports or services surplus, the current account deficit (CAD) worsens. According to Bank Bazaar commentary, large gold imports reduce net inflow of foreign exchange and thereby impact the CAD and rupee stability. For instance, the CAD for April to June 2025-26 narrowed to 0.2 % of GDP (US $2.4 billion) from 0.9 % of GDP (US $8.6 billion) a year earlier. But this improvement was helped by services-exports rather than a shrinkage of gold/larger import problem.
Large outward gold import payments imply more demand for foreign currency (USD etc), which can deplete foreign-exchange reserves or put downward pressure on the rupee. A weaker rupee then makes imports costlier (including gold) a feedback loop. Studies highlight that gold imports “bring down the rupee’s value” and increase import costs for other essentials. Moreover, when gold competes with other productive investment or savings, it may dampen domestic capital formation. Studies observe that a large share of household savings goes into gold, which “does not flow in the overall economy and as such does not contribute toward it.” From a policy-perspective, every dollar spent on gold imports is a dollar not used for other imports that could generate export capacity, or for domestic investment. Over time, this can reduce growth potential and competitiveness.
While much of the focus is on India, the global gold market and India’s special position are relevant. India is the second-largest gold consumer in the world after China. Given its size and pattern of consumption, gold imports from India have outsized significance for the global balance of supply and demand. Also, gold prices tend to rise in times of global risk, inflation or currency weakness thus raising the import-value burden for India. India’s policymakers have long recognized the gold import-trade-deficit challenge. For example, the NITI Aayog report on “Transforming India’s Gold Market” documented that the import of gold has repeatedly been flagged as a structural drag in the BoP. Past measures include raising import duties and curtailing non-essential gold imports. A recent commentary notes that when India raised import duty to 12.5 % in 2022 to curb gold imports, it was done in the context of managing the trade deficit. Thus the gold import dilemma is neither new nor isolated.
Putting the pieces together, here are the key reasons why the surge in gold imports is a structural problem for the balance of payments. Physical gold imports represent consumption (or investment) rather than production. They do not get exported in the same value and thus widen the net import side of the BoP. Unlike investment in manufacturing or export-oriented sectors, gold imports typically do not generate domestic income or employment proportional to their value. The economic multiplier is low. High import bills mean that the economy becomes more sensitive to external shocks (currency depreciation, global gold-price surge, supply bottlenecks). Every dollar spent on gold imports is a dollar less available for other imports (capital goods, technology) or servicing external obligations. A weaker rupee makes gold more expensive in rupee terms, increasing demand for imports; rising gold imports further weaken the rupee or deplete reserves; this in turn can increase inflation and import costs for other goods. When the import direction is skewed heavily towards non-productive goods (like bullion), the country’s policy space for external management becomes constrained. While gold consumption may bring private utility, from a macroeconomic viewpoint, diverting large savings into gold (rather than productive investment) may reduce growth potential and keep the economy import-heavy.
Let us take a more granular look at how this is playing out for India. The sudden jump to US $14.72 billion in gold imports in October 2025 (tripling year-on-year) is instructive. It represents a very large chunk of the monthly import bill, and it came at a time when goods exports were weak. The combination of a surge in gold imports + falling exports explains the record merchandise trade deficit of US $41.68 billion in that month. Such a spike means that a large portion of the incremental import growth is not matched by export growth, thus leading to a net widening of BoP pressures. At the same time, the gems & jewellery exports segment (which could offset some of the gold import value if value-added jewellery is exported) declined sharply by 29.5 % y/y to US $2.3 billion in a recent month. This suggests a mismatch: imports surge, but the export side of that chain is under pressure. Gold’s share of total imports at over 5 per cent is significant. When one commodity (or in this case precious metal) accounts for such a high share of total imports, the import bill becomes concentrated and thus more volatile and risky. Moreover, as the gold import bill rises, so does the demand for foreign exchange competing with other uses (capital goods imports, servicing debt, run-down of reserves). India’s savings culture places a large portion of household savings into gold (both jewellery and bullion). While this reflects preferences, from a macro-perspective it means that domestic savings do not always translate into productive investment. BankBazaar commentary points out that “a large portion of peoples’ savings going into gold, the economy is left wanting.” Thus, gold not only affects the external sector but also domestic capital formation.
As mentioned, import duties on gold have been used as a tool in the past. The NITI Aayog report urged actions such as promoting domestic refining, monetization of gold holdings, financialisation of gold, and reducing dependency on imports. The recent sharp rise may force a reconsideration of these tools or the need for stronger enforcement (monitoring, curbing unreported imports, etc). If the current trajectory continues unchecked, a number of risks may crystallize for India’s external sector and macro economy persistent current?account pressures, currency depreciation and inflation, reserve depletion, investment and growth drag, policy constraints and volatility. Given the above, corrective levers should India consider to manage its gold-import challenge and mitigate its impact on the BoP are encourage domestic supply/processing, promote monetization of idle gold holdings, financialization of gold as an asset, targeted import-duty and regulatory, policy, strengthen exports of value-added jewellery, macro-prudential and external-sector management, public awareness and behavioral change.
The surge in India’s gold imports is not merely a statistical blip, it is a macro-economic symptom of deeper structural issues. A country with vibrant demand for gold, but limited domestic production, will always suffer an import-bill drag unless balanced by strong export growth, high external inflows or sufficient domestic substitution. The October 2025 data highlight how a large surge in gold imports can quickly widen the trade deficit. The fact that the import surge came during a period of weak exports compounds the concern: the offsetting mechanism is weak. India’s status as the world’s second-largest gold consumer means that domestic behaviour has outsized global import impact. From a BoP perspective, repeated and large outflows for gold may reduce resilience to external shocks (currency shocks, commodity price shocks). Long-term growth implications are non-trivial: if a large part of household savings continually flow into physical gold imports rather than domestic investment, the economy may be losing out on potential capital formation. In short: rising gold imports threaten to become a “hidden leak” in India’s external-sector plumbing. It is time for policymakers, industry and civil society to treat gold imports not just as a cultural or consumer phenomenon, but as an integral part of the macro-balance. Only a combination of demand moderation, domestic supply/process enhancement, financial-asset alternatives, export-oriented value-addition, and robust external-sector management will help ensure that India’s gold lust does not become an Achilles’ heel in the balance of payments.
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