New Delhi: Gold demand in India has fallen by nearly 70 per cent after the government doubled the import duty on the precious metal earlier this month.Higher fuel and food prices linked to the ongoing conflict in Iran have further depressed consumer sentiment.Industry estimates show gold demand fell to around 7.5 tonnes in the fortnight ended May 27, compared to around 25 tonnes in the same period last year. According to the Economic Times, the sharp slowdown occurred after the government increased the import duty on gold from 6 percent to 15 percent from May 13. According to India Bullion and Jewelers Association (IBJA), jewelers across the country have registered a huge decline in purchases after the increase in duty.IBJA national secretary Surendra Mehta said, “Reports from jewelers across India show that there has been a 70 per cent decline in demand after the increase in import duty.”He said the unorganized sector, which accounts for about 65 per cent of India’s gold trade, has been most affected by the higher duties.After the duty revision, the effective tax burden on gold including Goods and Services Tax (GST) has increased from 9.18 percent to 18.45 percent. The government has introduced this measure amid a weakening rupee, high crude oil prices and geopolitical tensions, and has also tightened some import rules.Industry officials said the duty hike coincides with rising prices of petrol, diesel and food items, which has reduced consumers’ willingness to spend on discretionary purchases like gold.“The decline in demand is not just because of higher import duties,” said Joy Alukkas, chairman of jewelery retailer Joyalukkas. He said that Prime Minister Narendra Modi’s appeal to people to avoid buying gold for a year has also had an impact on sentiment.According to the company, demand at Joyalukkas stores has declined by more than 35 percent.Mehta said gold is not currently a spending priority for many families. He also pointed to the ongoing Adhik Maas, during which many Hindus traditionally avoid buying valuables.“What is more surprising is that investment demand for gold has also slowed down,” he said.
Go for lighter jewelery
With gold prices remaining high, many consumers are opting for lighter and lower carat jewelery rather than making large purchases.On Friday, gold of 999 purity was trading at around Rs 1.57 lakh per 10 grams in the spot market of Mumbai, excluding GST.Jewelers said demand has weakened especially in South India, one of the largest gold consuming regions in the country.“Consumers are not increasing their budgets,” said B Govindan, chairman of Bhima Jewellery. “They are buying what fits their budget and hence are choosing lighter and lower carat jewellery.”Also, retailers have reported an increase in the number of customers selling old jewelery in exchange for cash.“There is a huge rush among consumers to sell old gold and take home the cash,” Govindan said.
Retailers face disproportionate impact
Industry experts said the impact of the duty increase has been different on different segments of the jewelery market.Kavita Chacko, head of research at the World Gold Council (WGC), said major retail chains initially experienced some panic buying immediately after the announcement as consumers rushed to buy before prices adjusted.However, he said many retailers are now preparing for slower sales growth in the coming months.“Large chain stores have remained relatively resilient due to inventory buffers and continued support from bridal demand,” Chacko said.Medium-sized and regional jewelers are expected to rely more on gold exchange programs and tighter inventory management, while smaller retailers appear to be the most vulnerable due to already weak demand and declining profit margins.The slowdown comes after a strong start to the year for investment demand. Demand for gold bars and coins in India increased 34 per cent year-on-year to 62.3 tonnes during the March quarter.India remains one of the world’s largest consumers of gold, with annual demand typically between 800 and 850 tonnes.Industry observers now warn that a combination of higher import duties, higher prices and weak consumer spending could hit gold demand until the second quarter of 2026, unless market conditions improve.