Gold Retailers Offer Exchange Schemes in Response to Import Duty Increase and Government Call to Action

India's Jewellery Industry Shifts Focus to Gold Recycling Amid Foreign Exchange Concerns

Prime Minister Narendra Modi's appeal to citizens to avoid non-essential gold purchases for a year to safeguard India's foreign exchange reserves has sparked a wider push within the jewellery industry towards gold recycling and exchange programmes. This shift is seen as an alternative to suppressing demand, with many jewellery companies launching initiatives to encourage consumers to exchange their old gold for new jewellery.

The government's decision to increase the gold import duty to 15 percent from 6 percent has intensified concerns around rising import costs, pressure on the current account deficit, and elevated bullion prices. With India heavily dependent on imported gold, jewellers are now encouraging customers to exchange idle household gold for new jewellery instead of making fresh purchases. For instance, Tanishq has expanded its old gold exchange programme with the #OldGoldNewIndia Campaign, offering flat zero deduction on exchange of old gold as low as 9 karat bought from any jeweller.

Other jewellery companies, such as Kalyan Jewellers, have also launched initiatives to promote gold recycling. The firm's 'Nation First – Gold4India Initiative' aims to drive old gold exchange programmes, promote the adoption of lighter 18 carat jewellery, and gold monetisation schemes, as well as a gold recirculation drive. As part of the programme, customers at the firm's 342 stores will be encouraged to exchange old, unused, broken, or outdated jewellery, thereby reducing the need for equivalent quantities of newly imported gold.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market experts believe that the higher duty may temporarily impact physical demand but could support macroeconomic stability. Hareesh V, Head of Commodity Research at Geojit Investments Limited, notes that gold continues to hold its appeal as a safe-haven asset, particularly in times of global uncertainty and domestic currency pressures. However, higher duties could revive smuggling risks, as witnessed earlier when import duty stood at 15 percent, but may also help reduce the import bill and provide support to India's foreign exchange reserves in the near term.

With gold accounting for nearly 9–10 percent of India's total import bill, the jewellery industry now appears to be aligning itself with the government's broader objective by shifting focus from fresh imports to recycling and monetising existing domestic gold holdings. India holds an estimated 25,000 tonnes of idle gold in households, and unlocking even a fraction through a credible monetisation framework could reduce dependence on imports and ease pressure on forex reserves.

Comparison of Gold Import Duty and Its Impact

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Table: India's Gold Import Bill

Note: The estimated 2023 gold import bill is subject to change based on various market and economic factors.