Whalesbook
India Downplays UAE Trade Pact's Gold Import Role Amid Record Value Surge
India's gold import bill reached a record $71.98 billion in fiscal year 2026, but officials emphasize that higher global prices, not increased demand or the India-UAE trade agreement, are driving this value surge.
Value Climbs While Volume Decreases
Despite the record import value, the physical volume of gold imported into India actually declined in FY26. Imports dropped by 4.76% to 721.03 tonnes, compared to 757.09 tonnes in FY25. The significant increase in import value, a 24% rise year-on-year, is attributed to a sharp increase in the average price per kilogram of gold. This price rose from $76,617.48 in FY25 to $99,825.38 in FY26. In April 2026 alone, gold imports were valued at $5.63 billion, up from $3.1 billion the previous year, a rise officials attribute solely to elevated unit prices. While gold's appeal as a safe-haven asset amid geopolitical uncertainty likely supports underlying demand, soaring international prices are inflating the overall import expenditure.
UAE Trade Pact Utilization Remains Minimal
Commerce Secretary Rajesh Agrawal reiterated that the India-UAE Comprehensive Economic Partnership Agreement (CEPA) has had "no major impact" on gold imports. Only a negligible amount, less than one tonne, has entered India under its preferential tariff quota system. This is a fraction of the 120 tonnes allocated annually. Concerns have previously surfaced that trade agreements could be used for arbitrage, with gold potentially routed through Dubai to benefit from lower tariffs. However, current data shows imports from the UAE declined in value and volume during FY26.
Sourcing Shifts to Switzerland, UAE Share Declines
As imports from the UAE saw a decrease, Switzerland has emerged as India's largest gold supplier, accounting for approximately 40% of total imports in FY26. The UAE's share fell to over 16%. This recalibration of sourcing patterns appears influenced by geopolitical disruptions affecting traditional Gulf routes, rather than a direct surge in demand facilitated by the CEPA.
Trade Deficit and Macroeconomic Pressures
The substantial gold import bill contributes significantly to India's macroeconomic challenges. The merchandise trade deficit widened to $333.2 billion in FY26, partly due to precious metal imports comprising over 9% of India's total imports. The current account deficit (CAD) also increased, reaching $13.2 billion, or 1.3% of GDP, in the December 2025 quarter. Geopolitical tensions in West Asia are driving up crude oil prices, which directly impacts India's import costs, CAD, and inflation. While officials noted that rising oil prices have not yet hampered export competitiveness, early May indicators for exports remain encouraging. The government views rupee depreciation as generally beneficial for exporters, though its impact can be diluted by high import costs in some manufacturing sectors.
Concerns Over Indirect Pact Benefits and Vulnerabilities
While the official tariff quota utilization is low, questions persist about the indirect benefits of trade agreements. Reports of gold previously being routed through Dubai have fueled concerns about potential tariff arbitrage, suggesting trade pacts might be exploited for duty avoidance rather than purely bilateral trade. Gold's ongoing role as a safe-haven asset amid geopolitical risks points to sustained demand. This presents a continuous challenge for managing India's import bill. Recent government measures, such as import curbs and potential reviews of trade concessions, signal an acknowledgment of these pressures. The reliance on external supply chains, vulnerable to geopolitical shocks, remains a key consideration.
Outlook for Gold Demand and Imports
Despite elevated prices, gold demand in India is expected to stay resilient, supported by cultural significance and its safe-haven status amidst global economic uncertainty. The government's strategies to manage import pressures, including potential duty adjustments and trade concession reviews, will be vital for balancing domestic demand with external account stability. While early May export indicators are positive, ongoing volatility in oil prices and geopolitical tensions pose continuous risks to India's macroeconomic outlook. Future import volumes will be closely monitored to see if price-driven value increases and volume moderation persist, alongside evolving sourcing strategies influenced by geopolitical factors and policy adjustments.