India's Gold Demand to Decline by 50-60 Tonnes Next Year Amidst Import Duty Hikes

India's Gold Demand Expected to Contract 10% This Year

The World Gold Council (WGC) has forecast a decline in India's gold demand by 50-60 tonnes this calendar year, representing a 10% decrease compared to the previous year. This projection comes after the government hiked the gold import duty from 6% to 15%, a move that has had a significant impact on the gold market.

The sharp increase in import duty has led to a decline in gold demand, with the WGC citing its India gold market update as a key indicator. The report highlights that the import duty hike has fully reversed the duty cut implemented in July 2024, making it the single-largest increase on record. The Prime Minister has also appealed to consumers to avoid buying gold for a year, further contributing to the decline in demand.

Other factors, such as the gold price, changes to income levels, inflation, and the effects of the monsoon, are also expected to influence annual demand. The WGC noted that its econometric models suggest that changes in import duties tend to impact gold demand in both the short and long term, although the impact differs across jewellery and investment products such as bars and coins.

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According to the WGC, jewellery consumption is influenced more by prices and inflation, with import duties having less of an impact. This is because jewellery purchases are often required, particularly for weddings and social occasions. In contrast, investment demand is linked to income levels and import duties, with higher duties and restrictions tending to weigh on demand.

The WGC also pointed out that import data suggests a consistent relationship between higher import duties and the inflow of unofficial gold. Between 2013 and 2026, increases in import duty were mostly followed by higher levels of unofficial or smuggled gold, while duty reductions coincided with sharp declines in such inflows.

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The WGC noted that once smuggling networks are established, they are difficult to unravel, as observed with the steady unofficial inflows averaging 34 tonnes per quarter between 2013 and 2019. However, after the duty was cut to 6% in July 2024, unofficial imports fell almost immediately to near zero.