India-UAE Trade Pact Could Become Preferred Channel for Bullion Imports

India’s recent increase in customs duty on gold and silver may unintentionally divert a larger share of precious metal imports toward the United Arab Emirates (UAE) under the India-UAE Comprehensive Economic Partnership Agreement (CEPA), according to industry experts.

The widening gap between regular import duties and concessional tariffs available under the free trade agreement is creating fresh arbitrage opportunities for bullion traders and importers.

Analysts believe the development could significantly increase imports routed through Dubai and other UAE trade hubs, potentially reshaping India’s bullion import patterns in the coming years.

Higher Duty Creates Growing Tariff Arbitrage

The government recently raised customs duty on gold and silver imports from 6 per cent to 15 per cent in an effort to curb rising imports, conserve foreign exchange reserves, and reduce pressure on the Current Account Deficit (CAD).

However, under the India-UAE CEPA agreement, concessional tariffs continue to apply to eligible imports originating from the UAE.

For silver imports specifically:

• India had agreed to gradually reduce duties from 10% to zero over a 10-year period under CEPA
• The current concessional duty on silver imported from the UAE stands at 7%

This creates a substantial duty differential compared with normal import channels, increasing incentives for traders to use the UAE route.

Industry participants believe similar trends may emerge in gold imports if duty gaps widen further.

Dubai May Strengthen Position as India’s Bullion Gateway

Dubai has historically played a major role in India’s gold and precious metals trade due to:

• Geographic proximity
• Strong refining and trading infrastructure
• Established bullion markets
• Efficient logistics connectivity

The widening tariff advantage under CEPA could further strengthen the UAE’s position as a preferred sourcing and transit hub for Indian importers.

Experts say bullion shipments may increasingly be routed through Dubai to take advantage of lower effective duties available under the FTA framework.

This could lead to:

• Higher bullion imports from UAE
• Diversion of trade flows from other countries
• Growth in UAE-based refining and trading activity
• Increased scrutiny over rules-of-origin compliance

Concerns Rise Over Arbitrage Opportunities

The growing gap between standard customs duties and concessional CEPA rates has raised concerns over possible arbitrage practices.

Market observers warn that traders may attempt to:

• Re-route bullion through UAE channels
• Exploit pricing differentials
• Optimise tax structures through trade routing

Authorities may therefore closely monitor:

• Import origin verification
• Compliance with CEPA rules
• Value addition requirements
• Documentation standards

Industry experts believe stronger oversight may be needed to prevent misuse of concessional trade arrangements.

Government’s Duty Hike Aimed at Reducing CAD Pressure

India’s customs duty increase was primarily intended to:

• Reduce non-essential imports
• Protect foreign exchange reserves
• Support rupee stability
• Contain widening trade deficit pressures

Gold and silver imports account for a significant share of India’s merchandise imports and contribute heavily to Current Account Deficit (CAD) pressures, especially during periods of elevated global prices.

However, economists have repeatedly warned that higher import duties alone may not significantly reduce structural demand for precious metals in India.

Instead, demand may shift toward:

• Alternative trade routes
• Informal channels
• Smuggling networks
• FTA-linked import structures

The UAE route may now emerge as one of the biggest beneficiaries of the latest duty changes.

India’s Strong Cultural Demand for Precious Metals Continues

India remains one of the world’s largest consumers of gold and silver due to:

• Weddings and festivals
• Investment demand
• Rural savings patterns
• Inflation hedging
• Cultural wealth preservation

Because demand remains deeply embedded in household savings behaviour, higher duties often fail to reduce consumption meaningfully over the long term.

Instead, traders and consumers typically seek lower-cost sourcing alternatives whenever tariff gaps increase.

Analysts say this structural demand is likely to sustain bullion imports despite rising prices and higher duties.

Impact on Domestic Bullion Industry

The shifting trade dynamics may have mixed implications for India’s bullion and jewellery industry.

Potential effects include:

• Increased imports routed via UAE
• Greater competition among importers
• Pressure on domestic refining margins
• Changes in sourcing patterns for jewellers
• Higher compliance requirements

Formal jewellers and bullion dealers may increasingly depend on CEPA-linked imports to remain competitive in a high-duty environment.

At the same time, customs authorities may intensify monitoring of import declarations and origin certifications.

UAE-India Trade Ties Continue to Deepen

The India-UAE CEPA agreement has significantly expanded bilateral trade since its implementation in 2022.

The agreement aims to:

• Increase trade volumes
• Improve market access
• Reduce tariffs across sectors
• Strengthen strategic economic cooperation

Bullion trade has become one of the key areas influenced by the pact.

Experts believe the latest duty changes could further accelerate:

• Precious metals trade between India and UAE
• Investment in bullion logistics
• Financial market integration
• Dubai’s role in South Asian commodity flows

Policy Challenges for Regulators

The situation presents a complex challenge for policymakers.

While higher duties are intended to discourage imports and reduce CAD pressure, large tariff differentials under FTAs may dilute the effectiveness of such measures.

Authorities may eventually need to balance:

• Trade agreement obligations
• Revenue considerations
• Domestic industry protection
• CAD management goals
• Anti-arbitrage enforcement

Some experts believe India may increasingly focus on:

• Financial gold alternatives
• Gold recycling
• Sovereign Gold Bonds (SGBs)
• Gold monetisation schemes

rather than relying solely on import duty increases.

Outlook

India’s latest customs duty hike on gold and silver may unintentionally accelerate bullion imports through the UAE under the CEPA framework, creating new trade dynamics in the precious metals market.

As tariff differentials widen, Dubai is likely to strengthen its role as a major gateway for bullion entering India. While the move may support bilateral trade under the FTA, it could also complicate the government’s efforts to reduce imports and manage CAD pressures.

The coming months will determine whether policymakers introduce additional safeguards or rely on tighter compliance monitoring to address rising arbitrage concerns in the bullion trade ecosystem.