India's gold demand has experienced a dramatic decline of 70% after the government increased the import duty on the precious metal from 6% to 15%. This policy change, effective from May 13, 2026, has significantly impacted the market, with demand falling to approximately 7.5 tonnes in the fortnight ending May 27, compared to nearly 25 tonnes during the same period last year.
Impact on the Market
The India Bullion & Jewellers Association (IBJA) has reported a steep decline in gold purchases, particularly affecting the unorganised sector, which constitutes about 65% of India's gold trade. The effective tax burden, including Goods and Services Tax (GST), has risen to 18.45% from 9.18%.
"Reports trickling in from jewellers across India show that there has been a 70% drop in demand after the import duty was hiked," said Surendra Mehta, National Secretary of IBJA.
Economic and Geopolitical Factors
The duty hike comes amid a weakening rupee and elevated crude oil prices, compounded by geopolitical tensions. These factors, along with rising petrol, diesel, and food prices, have reduced consumer spending on discretionary items like gold.
Retailer Insights
Joy Alukkas, Chairman of Joyalukkas, noted a more than 35% drop in demand at their stores. He attributed this to both the high import duty and Prime Minister Narendra Modi's appeal to avoid buying gold for a year.
Consumer Behavior
Consumers are shifting towards lighter and lower-carat jewellery due to high gold prices, with gold of 999 purity trading at around Rs 1.57 lakh per 10 grams in Mumbai's spot market. Retailers have also observed a surge in customers selling old jewellery for cash.
| Period | Demand (Tonnes) | Import Duty (%) |
|---|---|---|
| May 2025 | 25 | 6 |
| May 2026 | 7.5 | 15 |
B Govindan, Chairman of Bhima Jewellery, highlighted that consumers are not stretching their budgets, opting instead for affordable options.
Conclusion
The import duty hike has had a profound impact on India's gold market, with significant declines in both consumer and investment demand. The ongoing Adhik Maas period, during which many Hindus traditionally avoid purchasing precious items, has further contributed to the slowdown.
