India Gold Demand Sinks 70% as Import Duty Jumps to 15%

India’s gold demand has slumped by nearly 70 per cent in the fortnight to May 27, after the government doubled the import duty on the metal and the effective tax on a gram of gold roughly doubled overnight. Industry estimates put purchases at about 7.5 tonnes for the two weeks, against close to 25 tonnes in the same period a year earlier. The collapse followed a single line in a customs notification: gold import duty up from 6 per cent to 15 per cent, effective May 13.

The drop is being read across the trade as proof the duty is working. The more awkward reading is that India just rebuilt, almost to the decimal, the price gap that two years ago revived gold smuggling, then spent 2024 dismantling.

A 70% Collapse in Two Weeks

The headline number comes from the India Bullion & Jewellers Association (IBJA, the country’s main bullion trade body). Jewellers from across the country reported the same thing once the duty landed: buyers walked.

Reports trickling in from jewellers across India show that there has been a 70 per cent drop in demand after the import duty was hiked.

That was Surendra Mehta, National Secretary of the IBJA, summarising the fortnight. What unsettled him more was that the slowdown reached investment buyers too, the bar-and-coin crowd that usually holds firm when jewellery softens. The reason sits in the tax math. Including Goods and Services Tax (GST, India’s national consumption levy), the effective burden on gold has climbed to 18.45 per cent, from 9.18 per cent before the change.

On Friday, gold of 999 purity traded near Rs 1.57 lakh per 10 grams in Mumbai’s spot market, before GST. At that level, the extra duty adds thousands of rupees to a modest purchase, and households noticed.

Why New Delhi Doubled the Duty

The hike was not about gold for its own sake. It was about the rupee. The currency has depreciated by more than 7 per cent so far this year, and gold is one of India’s largest non-oil import bills, a steady drain on foreign exchange whenever prices run hot.

So the government reached for the oldest lever it has. Raise the cost of importing bullion, slow the dollar outflow, take pressure off the currency. The timing leaned on the same logic: crude oil prices have stayed elevated through the Iran conflict, food and fuel inflation has crept up, and a fat gold import bill on top of that was a number the Finance Ministry did not want to defend.

Policy was only half of it. Prime Minister Narendra Modi publicly appealed to citizens to hold off on buying gold for a year to ease the strain on the economy. Joy Alukkas, Chairman of jewellery retailer Joyalukkas, said that appeal hit sentiment as hard as the tax. “It is not only the high import duty that has dented demand,” he said. At his own stores, footfall and sales dropped more than 35 per cent.

The administration paired the duty with tighter import plumbing, capping duty-free inflows under the Advance Authorisation scheme at 100 kg per licence. The message to the bullion banks was unambiguous: less gold, please.

The Smuggling Incentive Returns

Here is where the policy bites its own tail. The duty India just imposed is the same 15 per cent it scrapped in July 2024, in what the deepest cut to Indian gold customs duty on record at the time. The 2024 cut had one stated purpose beyond cheaper jewellery: shrink the price gap that makes smuggling profitable and pull trade back into the formal system.

It worked fast. After duty dropped to 6 per cent, unofficial imports fell almost to near zero, because the margin a courier could earn on a smuggled kilo no longer covered the risk.

The 2024 Cut Is Now Fully Reversed

The May change, by the World Gold Council’s own account, is the steepest increase on record and “fully reversing the duty cut of July 2024.” Domestic prices have already moved 4 to 6 per cent higher since the change, and at one point traded at a discount of nearly US$150 an ounce to official international prices, the kind of spread that grey-market supply exists to arbitrage.

History Points One Way

The relationship is not anecdotal. The World Gold Council pegs the correlation between import duty and unofficial imports at 0.52, positive and meaningful. SBI Research has noted that across roughly a decade of data, duty increases were mostly followed by more smuggled gold, while cuts coincided with sharp drops. Customs agencies have already flagged a rise in interception attempts since the duty changed. A 70 per cent fall in recorded demand, on this reading, is partly demand deferred, partly demand recycled, and partly demand that has simply stopped showing up in the official ledger.

Big Chains Hold, Small Jewellers Bleed

The pain is not landing evenly. Kavita Chacko, research head at the World Gold Council (WGC, the industry’s global market body), said large retail chains saw a burst of panic buying right after the announcement, as shoppers rushed in before prices reset. That cushion is fading, and the segments now diverge sharply.

Chacko’s read on the top tier was blunt about why the giants survive the squeeze.

Large chain stores remain relatively resilient due to inventory buffers and continued support from bridal demand.

The bottom tier has no such cover. The unorganised sector accounts for roughly 65 per cent of India’s gold trade, and Mehta named it as the worst hit, the family-run counters that live on tight margins and cannot absorb a sudden tax shock or a fortnight of empty showrooms.

Shoppers Trade Down and Sell Old Gold

Where buyers are spending, they are spending smaller. With prices already high before the duty, the duty pushed many over the line into cheaper choices. B Govindan, Chairman of Bhima Jewellery, said the budget, not the design, now drives the sale.

The behaviour breaks into a few clear patterns across the market:

• Lighter pieces are replacing heavier ones, with shoppers buying whatever fits a fixed rupee budget rather than a fixed weight.
• Lower-carat jewellery is gaining share as buyers stretch the same money further.
• Old-gold selling has surged, with consumers melting down jewellery for cash rather than buying new.
• Southern India, one of the country’s biggest gold-buying regions, has cooled noticeably.

“There is a huge rush among consumers to sell old gold and take cash back home,” Govindan said. That rush matters beyond the counter. Recycled metal that re-enters the market reduces the need for fresh imports, which is exactly the forex relief the government wanted, but it also means the recorded demand drop overstates how much gold is actually leaving Indian hands.

The Gap Between a Fortnight and a Year

A 70 per cent collapse over two weeks is not the number to forecast a year by. The fortnight to May 27 caught the worst of it: the duty shock, the Modi appeal, and the Adhik Maas period, when many Hindus traditionally avoid buying precious items anyway. Mehta flagged that overlap himself.

Zoom out and the picture softens. The year began strong, with India’s demand for gold bars and coins up 34 per cent year on year to 62.3 tonnes in the March quarter. India still consumes between 800 and 850 tonnes of gold in a typical year. Against that base, the World Gold Council’s full-year demand outlook after the import tightening projects a decline of 50 to 60 tonnes, around 10 per cent, not 70.

The distance between those two numbers is the real story. If the gap is mostly deferral, demand returns once households adjust to the higher price and the festival calendar turns. If it is mostly diversion, the metal keeps moving, just through channels that pay no duty and defend no rupee. Through the second quarter, the figure that tells New Delhi which one it bought will not be the demand chart in the showrooms. It will be the seizure logs at the airports.

Disclaimer: This article is for informational purposes only and does not constitute investment, tax, or financial advice. Gold prices, import duties, and tax treatment carry market and regulatory risk and can change without notice. Consult a qualified financial or tax professional before making decisions. Figures are accurate as of publication on May 30, 2026.