India's decision to more than double its gold import tariff to 15% is accelerating the shift of precious metal flows into unofficial channels, according to the World Gold Council.
The industry body warned that the steep duty hike, implemented in May to curb demand and ease pressure on the rupee, is instead hurting organised trade and boosting the grey market.
The policy was designed to reduce the country's trade deficit by discouraging imports of the highly sought-after metal.
However, the price differential created by the tariff has incentivised consumers and traders to seek alternative, untaxed supply routes.
This undermines the fiscal logic of the measure, as the government loses potential revenue while failing to significantly dent overall demand.
The Kerala Gold and Silver Merchants Association (KGSMA) has previously urged the government to review and rationalise import duties, warning that current levels are driving a surge in illicit inflows.