Indian jewellery stocks experienced significant declines in Wednesday's trade, with some falling as much as 6%, following the government's decision to sharply increase customs duty on gold and silver imports. The move, which revises the effective import tax from 6% to 15%, impacted major players in the sector.
Customs Duty Hike Drives Sell-Off
The government announced a hike in import tariffs on both gold and silver, setting the new effective rate at 15%. This comprises a 10% basic customs duty and an additional 5% Agriculture Infrastructure and Development Cess (AIDC). This revision marks a substantial increase from the previous 6% duty and has been cited as the primary driver for the current market downturn in jewellery stocks.
Among the hardest hit were Kalyan Jewellers India Ltd, whose shares dropped 5.62% to Rs 341.45 on the NSE. Senco Gold Ltd saw a 1.6% decline, trading at Rs 307.80, while Thangamayil Jewellery Ltd fell 2.43% to Rs 3,580.70. PN Gadgil Jewellers was down 1% at Rs 620.95. Titan Company Ltd initially fell but later recovered to trade flat, suggesting investors viewed the initial sell-off as potentially excessive for some larger entities.
Market Anticipation and Government Strategy
The market had been anticipating such taxation measures on gold, according to analysis from Kotak Institutional Equities. Nomura had previously suggested that the government might seek to disincentivize non-essential imports like gold, including a potential hike to customs duty, although it noted administrative delays had already stalled gold shipments since March.
This latest fiscal adjustment aligns with broader government efforts to manage the economy. Earlier this week, Prime Prime Minister Narendra Modi publicly appealed to households to consider avoiding gold jewellery purchases for one year. This appeal, combined with the duty hike, is seen as a strategic move to reduce policy appetite for further worsening of twin deficits, which have recently triggered broader market volatility.