With the government increasing import duties on precious metals, jewellers believe near-term consumer demand is likely to be impacted, making purchases more value-conscious. However, the industry expects recycled and exchanged gold to increasingly drive jewellery purchases in the coming quarters, even as investors assess the impact of higher domestic prices and widening gaps with international markets.
“The duty revision may lift retail jewellery prices in the near term, and customers, particularly first-time and investment-led buyers, will take a moment to recalibrate. What we expect over the coming quarters is not a contraction in demand so much as a shift in how that demand is met. Exchange of old gold for new jewellery, already a meaningful share of transactions at organised retailers, will become the dominant mode of purchase,” said M P Ahammad, chairman of Malabar Group.
The government on Tuesday raised the effective import duty on gold, silver and other precious metals to 15% from 6% in a move aimed at curbing non-essential imports and conserving foreign exchange amid rising geopolitical tensions in West Asia.
Analysts said organised retailers with strong exchange programmes and better financing capacity are expected to fare better than smaller, unorganised jewellers. According to Renisha Chainani, head of research at Augmont, retailers focusing on exchange programmes, lightweight collections and lower-caratage jewellery are likely to outperform those dependent on heavy bridal jewellery demand.
“The duty hike has, in effect, accelerated a structural shift in India’s jewellery retail model — away from heavy solitaire buying toward exchange-led, design-first purchasing,” Chainani said.
The higher duties are also influencing investor sentiment in the bullion market. Vastupal Ranka, director at Rare Jewels, said rising domestic gold prices could encourage short-term profit booking among existing investors. He also flagged concerns over illegal gold trade.
“At the same time, a wider gap between international and Indian gold prices can encourage unofficial channels and put pressure on organised jewellers,” Ranka said, adding that exporters may also face challenges as Indian jewellery becomes costlier in markets such as the UK and the US.
Commodity analysts expect domestic bullion prices to remain elevated in the near term as markets absorb the impact of the new duty structure. Saumil Gandhi, senior analyst, commodities, at HDFC Securities, said the revised levy is likely to keep domestic gold and silver prices higher than global benchmarks.
