Import Duty Hike on Gold Likely to Stimulate Pre-Owned Sales, Dampen Retail Demand

Government Hikes Import Duty on Gold and Silver, Expects Sharp Decline in Sales

The Indian government has announced a significant increase in import duties on gold, silver, and precious metals, aiming to curb overseas purchases and reduce pressure on foreign exchange reserves. Effective from May 12, the basic customs duty on gold has been hiked by 10 percent, and a 5 percent Agriculture Infrastructure and Development Cess (AIDC) has been imposed, taking the effective import tax to 15 percent.

According to industry leaders, the move is expected to lead to a sharp decline in sales of gold jewellery and coins, particularly in price-sensitive segments of the market. However, it is also anticipated to spur old gold exchange within the economy. The increased import duty is expected to make imports costlier, leading to a moderation in gold imports to the extent of 10-15 percent in the near term.

Industry leaders are adapting to the new policy by strengthening exchange programmes, innovating products, and focusing on lightweight and value-driven jewellery offerings. They believe that the higher import duty will eventually get built into the overall price of gold, and the higher cost will largely be passed on to consumers. However, the revised duty structure will also raise the valuation of gold already lying in vaults and existing inventories held by jewellers.

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Comparison of Impact on Sales

The sector is expected to witness a shift in demand in the near term, with exchange of old gold for new jewellery becoming the dominant mode of purchase. Industry leaders are encouraging customers to exchange their old gold lying idle at home, as this is one of the smartest ways to stay ahead of rising prices while refreshing their collection.

Some industry experts believe that the move is temporary and will not have a large impact on trade. They point out that India's jewellery sector has always demonstrated resilience and adaptability during challenging times.

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