Why is India importing so much more gold from the UAE? The 1% tariff gap holds the clue

India’s gold import bill has surged even as the government has raised import duties and urged consumers to avoid unnecessary gold purchases. But a sharp rise in shipments from the UAE is drawing attention to a seemingly small factor: a one-percentage-point tariff advantage under the India-UAE free trade agreement (FTA).

India’s gold-bar imports rose 47.1% to $11.01 billion in April-June 2026, from $7.49 billion a year earlier. The increase came despite the government raising the import duty on gold from 6% to 15% on May 13, while higher international gold prices also contributed to the rise in the value of imports.

UAE emerges as a major driver

The country-wise data, however, reveals a much more unusual pattern. India imported $649.4 million worth of gold from the UAE in June 2026, up 175.2% from $235.9 million in June 2025. In contrast, imports from the rest of the world fell 17.7%, from $1.60 billion to $1.32 billion.

The divergence was even more striking over the April-June quarter. Gold imports from the UAE more than doubled, rising 124.8% to $3.14 billion from $1.40 billion a year earlier. Imports from the rest of the world rose 29.3% to $7.87 billion.

India’s total gold imports increased by $3.53 billion during the quarter. The UAE alone accounted for $1.74 billion, or nearly half of the increase. Its share of India’s quarterly gold imports rose from 18.7% to 28.5%.

GTRI said the UAE had therefore become a “principal driver” of the increase in India’s gold import bill, rather than merely being another supplier.

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The 1% tariff difference

This is where the India-UAE FTA enters the picture.

The UAE is not a gold-producing country. Under the trade agreement, gold that meets the stipulated rules of origin can enter India at a 14% tariff, compared with the normal 15% rate.

GTRI founder Ajay Srivastava has argued that the one-percentage-point difference can matter in bullion trading because gold is a high-value commodity with relatively low margins.

The concern is whether the concession could encourage importers to source or route more gold through the UAE. GTRI has called for the government to review the concession and strictly enforce the FTA’s rules of origin. It has also sought scrutiny of gold and silver import concessions extended to the UAE.

Importantly, the data does not establish that third-country gold is being diverted through the UAE. The unusually rapid increase in UAE shipments has instead raised the question of whether the preferential tariff is contributing to the pattern.

Gold duty, smuggling debate adds another layer

The tariff debate also comes against a backdrop of concerns over India’s overall gold import duty and the possibility that higher duties could encourage illegal imports.

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“We fully support the Prime Minister's objective of conserving foreign exchange. But the duty, not the buyer, is where the problem lies,” said Harshal Dasani, Business Head at INVasset PMS.

“At 15%, India is not stopping gold from entering the country — it is only deciding whether it arrives through customs or through a smuggler's pocket,” Dasani said, arguing that the duty structure itself could create an incentive for illegal trade.

He said restoring the duty to 6% would bring more gold into the legal, GST-paying and hallmarked channel. Dasani also argued that the government could look beyond import duties and tap the large stock of gold already held by Indian households by reviving the Sovereign Gold Bond, fixing the Gold Monetisation Scheme and restoring duty-free gold for exporters.

Modi’s gold appeal puts policy under spotlight

The UAE surge assumes greater significance because Prime Minister Narendra Modi urged Indians to avoid unnecessary gold purchases, as part of a broader push for self-reliance.

That appeal has also unsettled the jewellery industry ahead of the wedding and festive season. The Chamber of Trade and Industry (CTI) estimates annual gold consumption could fall from around 800 tonnes to 500 tonnes if the slowdown persists, putting pressure on small retailers, manufacturers and artisans.

The competing concerns now put policymakers in a difficult position: curb unnecessary gold demand and conserve foreign exchange, while ensuring that the tariff structure does not create unintended incentives for import diversion or smuggling.

In that context, the sharp rise in UAE shipments has made the one-percentage-point FTA concession a much bigger policy question than its size might suggest.

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