Gold Demand Drops Nearly 70% After Import Duty Hike

India’s glittering relationship with gold has hit a massive roadblock. Following the government's aggressive policy move earlier this month, domestic gold demand has collapsed by nearly 70%. 

Data shows that during the fortnight ending May 27, demand fell to 7.5 tonnes, down from approximately 25 tonnes recorded during the same period last year. But the question is, why? 

Gold Import Duty Shock and Tax Burden 

The primary trigger for this freeze in consumer spending was the government's decision to more than double the import duty on gold. Effective May 13, the basic import duty was aggressively hiked from 6% to 15%. When adding the standard Goods and Services Tax (GST) into the mix, the total effective tax burden on gold has jumped from 9.18% to a staggering 18.45%. 

The government implemented this drastic measure alongside tighter import rules under the Advance Authorisation Scheme. The primary objectives were to defend a weakening Indian rupee, cushion the impact of elevated global crude oil prices, and shield the broader economy against escalating geopolitical tensions in the Middle East. 

Gold Prices Edge Lower Amid Geopolitical Uncertainty 

Gold prices on India’s Multi Commodity Exchange (MCX) declined on Monday, June 1, amid ongoing geopolitical tensions in the Middle East, while silver witnessed a marginal uptick. 

At 4:02 PM, the MCX gold futures contract was down 0.55% at ₹1,54,725 per 10 grams. In contrast, MCX silver July futures rose 0.37% to ₹2,67,980 per kg. 

On Friday, MCX gold June futures closed slightly higher by 0.07% at ₹1,56,098 per 10 grams, while MCX silver July futures ended 0.94% lower at ₹2,67,000 per kg. 

Impact of Gold Import Duty Hike by the Government  

When the government lifted the import duty on gold, jewellery stocks including Kalyan Jewellers, Thangamayil Jewellers, and Titan Company share price faced selling pressure, as higher gold prices weighed on consumer demand and the overall sector felt the impact. 

Meanwhile, gold ETFs such as Nippon India Gold ETF, Tata Gold ETF, HDFC Gold ETF, and ICICI Prudential Gold ETF rose 4%–6%, while silver ETFs also gained in a similar range of 4%–6%. 

Read More: Import Duty Hike on Gold Explained: Government's Rationale Behind Making Gold Costlier and Impact on Buyers 

Conclusion 

Gold demand in India has witnessed a sharp decline following the steep increase in import duty, which has significantly raised the overall tax burden on buyers. While global and domestic prices continue to react to geopolitical uncertainties, higher costs have dampened consumer sentiment and led to a notable slowdown in physical demand. 

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