India's gold imports are drying up as banks and bullion traders face new restrictions designed to defend a weakening rupee. The rules arrived amid geopolitical tensions from the Middle East war, leaving importers and financial institutions scrambling to comply while consumer demand for gold contracts sharply.

For a country where gold holds deep cultural significance and functions as a hedge against inflation, curbing imports directly hits consumer demand and jeweler margins. Banks that fund gold purchases now operate under tighter compliance frameworks, forcing traders to navigate an uncertain regulatory environment while managing thin margins.

Domestic premiums have risen as supply tightens, pushing some consumers toward informal channels. The rupee's weakness makes gold more expensive for Indian buyers, compounding the supply crunch and squeezing a market already under strain. Traders say the restrictions have effectively choked off the steady flow of imports that keeps local prices in line with global benchmarks.