PM Modi’s appeal working? Gold demand drops 70% after duty hike, rising costs

India’s gold demand has fallen about 70% since the government more than doubled import duties earlier this month, The Economic Times reported on Saturday, citing industry estimates and jewellers who pointed to higher prices, rising living costs, and Prime Minister Narendra Modi’s call for voluntary austerity.

The demand fell to about 7.5 tonnes in the fortnight ended May 27 from around 25 tonnes a year earlier, the report said. The decline followed the government’s decision to raise the import duty on gold to 15% from 6% with effect from May 13.

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“Reports trickling in from jewellers across India show that there has been a 70% drop in demand after the import duty was hiked,” Surendra Mehta, national secretary of the India Bullion & Jewellers Association (IBJA), told ET. “The unorganised trade, which comprises 65% of the gold trade, has been worst hit due to the duty hike.” 

The slowdown comes weeks after Prime Minister Narendra Modi urged citizens to adopt voluntary austerity measures in response to economic pressures arising from the Iran-Israel-US conflict. Among the suggestions was a one-year pause on gold purchases to conserve foreign exchange and reduce pressure on the economy.

Jewellers say the Prime Minister’s message has added to already weak consumer sentiment.

“It is not only the high import duty that has dented the demand,” Joy Alukkas, chairman of jewellery retailer Joyalukkas, was quoted as saying. “The Prime Minister’s appeal to stay away from gold for a year has also impacted consumer sentiment in a big way.”

Joyalukkas is seeing demand dropping by more than 35%, the chairman said, adding that he was not sure whether it will slip further.

Industry executives also cited higher fuel and food prices as a factor behind the decline. 

Following the duty increase, the effective tax burden on gold, including GST, has risen to 18.45% from 9.18%. The government raised duties amid a weak rupee, elevated crude oil prices, and geopolitical tensions, while also tightening import rules and capping duty-free imports under the Advance Authorisation Scheme.

“At present, gold is not in the priority list of consumers,” Mehta said. “Moreover, it is now the period of Adhik Maas, when Hindus generally avoid buying anything precious. What is more surprising is that the investment demand for gold has slowed down.”

The weakness is visible even in South India, traditionally one of the country’s largest gold-consuming regions. 

“Consumers are not stretching their budgets,” B Govindan, chairman of Bhima Jewellery, said. “They are buying whatever fits their budget and therefore choosing lightweight and lower-carat jewellery.”

He added that many consumers are moving in the opposite direction. “On the contrary, there is a huge rush among consumers to sell old gold and take cash back home.”