Gold smuggling into India has spiked ahead of key festivals, government and industry officials told Reuters, in response to record-high prices and a supply crunch.

Smuggling of gold into the world’s second biggest buyer of the precious metal had fallen after the government slashed import taxes on it to 6% from 15% last year.

However, Customs and Directorate of Revenue Intelligence (DRI) officials said smuggling has increased in recent weeks, with several attempts foiled at several Indian airports.

Bringing gold into India and liquidating it used to be time-consuming and risky, but with strong festival demand and limited supply, smugglers can now convert it in just a few hours, said a Chennai-based bullion dealer.

Indians will celebrate the Dhanteras and Diwali festivals this month, occasions when buying gold is considered auspicious and among the busiest days for purchases of the precious metal.

Gold prices in India hit a record 128,395 rupees per 10 grams on Thursday, marking a 67% rise so far this year.

At this price, smuggling a kilogram of gold is very lucrative for grey market operators, with margins exceeding 1.15 million rupees from dodging the 6% import duty and a 3% local sales tax.

“As gold prices keep climbing, smugglers are making bigger bucks. The payoff is now super tempting for them,” said a Mumbai-based senior bullion dealer, who declined to be named.

After import duties were cut in July, the margin for smugglers had fallen to 630,000 rupees per kilogram.

Investors are now chasing gold, creating supply tightness and pushing up premiums, the bullion dealer said.

Meanwhile, banks are unable to meet the full demand and are charging very high premiums on the available stock, said a Kolkata-based jeweller.

Indian dealers were this week quoting a premium of up to $25 per ounce over official domestic prices, the highest in more than a decade.

In the 2024/25 fiscal year ended in March, government agencies registered 3,005 cases of gold smuggling and seized 2.6 metric tons of the metal.