Gold demand in India has seen a significant decline, dropping by 70% in the fortnight ending May 27, following the government's decision to increase the import duty on gold from 6% to 15% effective May 13. The hike has severely impacted the unorganised sector, which constitutes 65% of the gold trade.
Industry estimates indicate that demand fell to approximately 7.5 tonnes from around 25 tonnes a year earlier. The increased import duty has raised the effective tax burden on gold, including GST, to 18.45% from 9.18%. This move comes amid a weak rupee, high crude prices, and geopolitical tensions.
Jewellers across India report a significant drop in consumer interest, with some attributing it to the Prime Minister's appeal to reduce gold purchases for a year. Joy Alukkas, chairman of Joyalukkas, noted a more than 35% drop in demand at his stores, while B Govindan of Bhima Jewellery observed a shift towards lighter and lower-carat jewellery.
“Reports trickling in from jewellers across India shows that there has been a 70% drop in demand after the import duty was hiked.”
Surendra Mehta, National Secretary of India Bullion & Jewellers Association (IBJA)
The duty hike has led to varied impacts across different segments of the gold market. Large chain stores experienced a brief surge in buying driven by fears of further measures, while mid-sized and regional jewellers are relying more on gold exchange programs. Smaller retailers face challenges due to high prices and reduced sales volumes.
The slump in gold demand may affect investment demand in the second quarter of 2026, following a strong start to the year. India consumes about 800-850 tonnes of gold annually, and the current market conditions could have broader implications for the industry.
“It is not only the high import duty that has dented the demand. The Prime Minister's appeal to stay away from gold for a year has also impacted consumer sentiment in a big way.”
Joy Alukkas, Chairman of Joyalukkas
Background
India's gold market is one of the largest in the world, consuming about 800-850 tonnes annually. The recent duty hike is part of the government's strategy to address economic challenges such as a weak rupee and high crude prices.
Looking ahead, industry stakeholders will be closely monitoring consumer behavior and market adjustments in response to the duty hike. The potential for further government measures and economic conditions will also be key factors influencing the gold market in the coming months.
