Gold import duty hike: Jewellers warn of 15% volume hit and surge in grey market trade as duties jump

The hike, effective May 13, partially reverses the duty reduction announced in the Union Budget 2024-25, when the government had brought down gold import duty to 6% to support the gems and jewellery sector, lower domestic prices, and check illegal imports.

The revised structure takes the basic customs duty on gold to 10% from 5%, while the Agriculture Infrastructure and Development Cess has been raised to 5% from 1%. 

Jewellery Council writes to PM, proposes alternatives

The Gem and Jewellery Export Promotion Council, which represents over 10,900 members, convened a meeting with major retailers and manufacturers and subsequently wrote to Prime Minister Narendra Modi with a set of proposals aimed at reducing import dependence without raising duties.

These include promoting lower caratage jewellery such as 18-carat and 14-carat to cut imports by 20–30%, encouraging consumers to exchange old gold for new jewellery, discouraging investment in gold bars, billets, and coins, which account for 20–30% of total imports, and reviving the Gold Monetisation Scheme in a more viable form to mobilise India’s estimated 25,000 tonnes of privately held gold.

At the same time, the council has maintained its position on the efficacy of such measures. “GJEPC’s consistent position is that hiking import duties rarely curbs gold imports—it merely inflates prices. Despite gold prices doubling recently, imports have not declined proportionally. Such measures often fuel smuggling and escalate export costs,” it said in a statement.

Working capital pressure on exporters

The council flagged the immediate financial strain on exporters, noting that they now face bank guarantees of Rs 28–30 lakh per kilogram of duty-free gold sourced from nominated agencies. It said this was severely blocking working capital and stifling exports.

GJEPC also highlighted the impact on smaller players. MSME manufacturers, it said, account for 80% of its membership and are currently facing a critical liquidity crunch. “The most severe impact of this policy will be felt by MSME manufacturers, who are the backbone of our industry,” the council said.

Retailers expect near-term demand slowdown

Suvankar Sen, MD and CEO of Senco Gold and Diamonds, said the hike would weigh on volumes in the near term, particularly among price-sensitive consumers. “An increase in import duty on gold typically has a direct impact on retail prices, which can influence short-term consumer sentiment, especially for price-sensitive buyers. In the immediate phase, some customers may choose to postpone discretionary purchases or wait for price stability before making decisions. It can lead to a volume degrowth of 10–15%,” he said.

Sen added that demand tied to weddings, festivals, and long-term wealth preservation tends to be more resilient. “While there may be a temporary slowdown in impulse or investment-led purchases, essential and occasion-driven buying is expected to continue. Consumers today are also becoming more value-conscious, with many exploring lighter jewellery, coins, and flexible purchase options to manage higher prices,” he said.

Advice to investors

On gold as an investment, Sen said existing holders should not take reactive decisions based on policy-driven price moves. “Gold has always been viewed as both an emotional and financial asset in India, and temporary price movements due to policy changes like customs duty hikes should not trigger panic decisions. Existing investors should avoid reacting to short-term volatility and instead stay focused on their long-term asset allocation goals,” he said.

For new investors, he recommended staggered buying through systematic allocation. He noted that gold ETFs and Sovereign Gold Bonds offer efficient exposure for those looking at financial returns without storage concerns, while physical gold in the form of coins, bars, and lightweight jewellery remains relevant for buyers combining investment with consumption.

Smuggling risk flagged

One concern that has resurfaced across the industry is the risk of a rise in illegal imports. A wider gap between domestic and international gold prices increases the incentive for grey market activity. The 2024 duty cut had been partly motivated by the need to reduce smuggling, which had risen when duties were previously elevated. 

What comes next

Malabar Gold and Diamonds has backed the government’s call for responsible gold consumption and recommended reforms to the Gold Monetisation Scheme, including lower minimum deposit requirements, easier e-KYC, flexible redemption options, and greater participation by organised jewellers.

GJEPC said it is submitting a detailed paper on revitalising the GMS for the government’s consideration and has called for dialogue on solutions that balance fiscal objectives with export competitiveness.