The Indian government's moves to veer investors away from gold might not yield the desired results. The effective import duty on gold has now risen to 15% from 6% earlier, in addition to PM Narendra Modi's appeal to refrain from buying gold for weddings — could impact physical gold purchases but investments could continue.
“The PM's appeal, combined with the sharp increase in import duties is likely to accelerate the shift from physical gold toward financial gold products such as Gold ETFs and Gold Fund of Funds (FoF). Higher tariffs raise the landed cost of jewellery and bullion, making exchange-traded products relatively more efficient, liquid and transparent for investors,” says Dr Manoranjan Sharma, chief economist at Infomerics Ratings.
Reduced imports – the government hoped, could tame the country's gold import bill, which stood at $71.98 billion in FY26. It went up 24% year-on-year, largely owing to gold price increase, as per a note by Quantum Asset Management Company.
The recent move of duty increase reverses the 2024 move of the government which had cut it to 6% from the earlier 15%. But the latest duty hike could make gold rarer, hiking its value, and could send more investors its way. Existing gold investors will see immediate gain, opines Chirag Mehta, CIO of Quantum AMC.
“Your holdings have repriced upward. This applies across physical gold, ETFs, and FoFs. No action required as you are already benefiting. As seen historically, duty hikes deliver instant mark -to-market gains for existing holders, in a way reinforcing gold's role in the portfolio,” Mehta adds.
ETF net asset values (NAVs) could move higher as Indian spot prices incorporate customs duties and taxes now. “Tracking errors and temporary premiums over NAV may also widen during periods of sudden demand spikes. “Some investors may shift from physical purchases to ETFs due to convenience and lower storage costs, boosting fund inflows further,” says Dr Sharma.
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ETFs Outpace Jewellery
Either ETF purchases hold steady or increase, it might not help reduce the gold import bill. As investors push money into ETFs, the AMCs buy physical gold on their behalf and hold them in vaults.
Already, ETF-based demand growth is outpacing jewellery demand has been consistently falling in volumes, due to reduction in purchases of mid and small ticket segments. Most of the growth is coming from investments.
“Investment demand led growth, with volume up 54% YoY to 82 tonnes and value up 179% YoY, outpacing jewellery demand. Bar and coin demand (at 62 tonnes) nearly matched jewellery demand (at 66 tonnes), while ETFs reached a record high,” says a note by World Gold Council.
Even within physical gold, bar and coins which are mostly seen as investments – are matching jewellery – showing that investors are eyeing gold more than jewellery buyers.
Entry Barriers To Rise For ETFs
In the last one year, gold ETFs have had a dream run — driven by growth in underlying values. MCX gold spot prices rose 20% QoQ and 81% YoY y to a record Q1 average of Rs 151,108 per 10 gm.
As data indicates in the table below, investor interest in gold ETFs in FY26 has been exceptionally strong. In January 2026, as much as Rs 24,000 crore of inflows went into gold ETFs, nearly matching equity mutual fund inflows for the month. Gold ETF assets and folio counts have risen sharply, with India accounting for nearly one-third of global ETF demand in Q1 2026, as per Infomerics Ratings.
Dr Sharma believes that gold ETF purchases in 2026 could exceed that of 2025 which itself saw a dream run. The inflows however could only be tempered if prices become prohibitively expensive for retail investors. New investors into ETFs would have to shell out more, owing to rise in duties.
“Higher import tariffs on gold and silver are likely to affect ETFs and FoFs indirectly, though not similar to physical bullion purchase. Gold and silver ETFs derive their value from underlying domestic metal prices, which rise when import duties increase. Existing ETF holders may benefit from price appreciation, but new investors could face elevated entry valuations,” adds Dr Sharma.
A few experts also believe that gold ETFs and fund of funds might see more investments as equities and other assets have turned volatile. “Many who blame gold tend to ignore that this allocation to gold helped investor's portfolios during a year when most of the assets lost heavily, acting as a saviour,” says Mehta.
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Can Gold Influence CAD?
While the gold import bill has been widening, most of it is due to the rise in value rather than rise in volumes. The trends in value show a sharp rise from $57.9 billion in FY25 to $72.4 billion in FY26. In volume terms, gold imports have shown a decreasing trend since FY24, reducing by approximately 5% in FY25 and FY26, says a note by SBI Ecowrap.
“This shows that the overall import bill has been dominated by price effect while volume effect is negative for the last two years,” says Dr. Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, in the note.
The note also points out that not all gold is domestically consumed, as ee-exports in terms of jewelry account for 38% — highlighting the fact that jewellery consumption change itself might not have a huge impact of India's woes of falling rupee, widening current account deficit (CAD) and the stress on its forex reserves. Investors, on the other hand, might keep readjusting their portfolios amid global uncertainty, with gold playing a key role.
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