New Delhi – India has witnessed a dramatic 70% reduction in gold demand over the past fortnight, largely attributed to a recent increase in import duties, escalating living costs, and Prime Minister Narendra Modi's appeal for voluntary austerity. Industry estimates indicate that demand plummeted to approximately 7.5 tonnes in the two weeks ending May 27, down from roughly 25 tonnes during the same period last year.
Duty Hike and Economic Pressures
The sharp decline follows the government's decision on May 13 to raise the import duty on gold from 6% to 15%. This adjustment, coupled with existing Goods and Services Tax (GST), has pushed the effective tax burden on gold purchases to 18.45%, a significant jump from the previous 9.18%.
According to Surendra Mehta, national secretary of the India Bullion & Jewellers Association (IBJA), the impact on demand has been immediate and severe. “Reports trickling in from jewellers across India show that there has been a 70% drop in demand after the import duty was hiked,” Mehta stated. He added that the unorganised sector, which constitutes about 65% of India's gold trade, has been particularly hard hit.
Modi's Austerity Call Influences Consumers
The slowdown comes weeks after Prime Minister Modi urged citizens to adopt austerity measures, including a one-year pause on gold purchases. This appeal aimed to conserve foreign exchange reserves and alleviate economic pressures stemming from geopolitical tensions, particularly the Iran-Israel-US conflict.
Joy Alukkas, chairman of prominent jewellery retailer Joyalukkas, confirmed the significant impact of the Prime Minister's message. “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,” Alukkas noted, reporting a demand drop of over 35% for his chain.
Beyond Policy: Rising Costs and Shifting Priorities
Industry executives also point to broader economic factors, such as higher fuel and food prices, which have strained household budgets and shifted consumer priorities away from discretionary spending like gold. “At present, gold is not in the priority list of consumers,” Mehta observed, also mentioning the period of Adhik Maas, when some Hindus traditionally avoid buying precious items, as a contributing factor.
Even South India, a traditionally robust gold-consuming region, shows signs of weakness. B Govindan, chairman of Bhima Jewellery, highlighted a trend where consumers are opting for lighter, lower-carat jewellery that fits their budgets. Conversely, many are selling old gold for cash, indicating a need for liquidity rather than new purchases.
The government's decision to increase duties was reportedly driven by a weak rupee, elevated crude oil prices, and ongoing geopolitical tensions, alongside efforts to tighten import regulations.