An analysis of 70 gold jewellery retailers, representing nearly one-third of the organised sector's revenues, indicates mounting pressure on the industry due to recent policy changes. The hike in gold import duty is expected to dampen demand, with sales volumes in the gold jewellery retail sector likely to fall to their lowest level in a decade, excluding the Covid-affected FY21.
India imported nearly 720 tonnes of gold in FY26, leading to a foreign exchange outflow of around $72 billion. The recent duty hike is anticipated to reduce the gold jewellery retail sector's volumes by 13-15% year-on-year to 620-640 tonnes this fiscal, levels not seen in the last decade. While higher gold prices are expected to result in inventory gains for retailers, these may be offset by deeper discounts to support volumes and rising promotional spending.
Domestic gold prices surged around 55% in the last fiscal year due to geopolitical tensions and the depreciation of the Indian rupee against the U.S. dollar. This has led consumers to shift towards lightweight jewellery, lower-carat products, and studded jewellery. Investment demand for gold has strengthened, with jewellery sales declining by around 25% and demand for gold bars and coins rising more than 50%.
“The move would act as a major deterrent for gold jewellery demand.”
Himank Sharma, Director of Crisil
Despite the challenges, realisations are expected to remain 35-40% higher year-on-year this fiscal, supporting stronger cash accruals for retailers. The sector's absolute EBITDA is projected to rise around 20% on-year, partly offsetting the increase in inventory holding costs, as inventory days could rise to 160-180 days from 150 days last fiscal.
Gaurav Arora, Associate Director of Crisil, noted that organised retailers are cautiously expanding through franchise-led models, improving capital efficiency and deepening penetration into Tier-2 and Tier-3 cities.
“Organised retailers are continuing to expand cautiously through franchise-led models.”
Gaurav Arora, Associate Director of Crisil
Background
The gold jewellery retail sector has been under pressure due to fluctuating gold prices and regulatory changes. The recent import duty hike adds to the challenges, as it could further weaken demand across segments. Historically, gold has been a preferred investment and cultural asset in India, but high prices and policy shifts are reshaping consumer behavior.
The gold jewellery retail sector faces significant challenges with the recent import duty hike. Fluctuations in gold prices, regulatory changes, and potential government restrictions on gold purchases will be critical factors to watch in the coming months.
