India’s gold demand falls 70%

Sending shockwaves through the country’s retail jewelry landscape, gold demand across India has cratered by nearly 70% over the last fortnight.

The historic demand freeze follows an aggressive economic policy shift executed on May 13, 2026, when the central government effectively doubled the base import tariff on the precious metal. Data compiled by prominent industry associations indicates that gold demand plummeted to just 7.5 tonnes during the fortnight ending May 27, down from the 25 tonnes recorded over the exact same period last year.

The resulting domestic buying slowdown represents one of the sharpest localized contractions in bullion volume witnessed in over a decade.

1. The Fiscal Catalyst: Doubling the Import Duty

The primary driver behind the immediate retail freeze is a drastic overhaul of the precious metals tariff pipeline. Seeking to protect foreign exchange reserves, contain a widening trade deficit, and ease pressure on a depreciating rupee, the government raised the baseline gold import duty from 6% to 15%.

When layered alongside standard state architectures, the math presents a major cost shock for consumers:

The Tax Leap: The sudden 9-percentage-point jump in the import tariff, paired with the standard 3% Goods and Services Tax (GST) and structural infrastructure cesses, has pushed the effective total tax burden on legal gold to 18.45%—up from the 9.18% baseline observed in early May.
Retail Apprehension: “Reports trickling in from jewellers across India show that there has been a 70 per cent drop in demand after the import duty was hiked,” confirmed Surendra Mehta, National Secretary of the India Bullion & Jewellers Association (IBJA).

2. A Perfect Storm: PM’s Appeal and Inflationary Pressures

While the tariff revision provided the structural price shock, a confluence of distinct geopolitical, socio-cultural, and presidential factors further dampened consumer sentiment:

The Prime Minister’s Discretionary Appeal

Compounding the tax burden, localized retail demand was heavily affected by an explicit public request from Prime Minister Narendra Modi. Amid broader global macro supply disruptions tied to the ongoing Iran conflict, the Prime Minister formally urged citizens to defer discretionary gold purchases for up to a year to help protect the nation’s economic baseline. National retail chains, including Joyalukkas, confirmed that this public guidance directly impacted footfall, driving an immediate 35% drop in internal store volumes.

The Discretionary Squeeze

Beyond the jewelers’ counters, families are facing tight constraints on their disposable household budgets. High localized fuel costs and persistent food inflation are forcing middle-class households to prioritize essential daily spending over luxury items. Furthermore, the late-May window coincided with Adhik Maas (an inauspicious period in the traditional calendar for high-end gold procurement) and marked the tail-end of the summer wedding cycle, leaving the market without a seasonal cushion to absorb the tax hike.

3. The Unintended Side Effect: Smuggling Incentives Reborn

Market analysts warn that while a 15% import duty successfully chokes off official bullion bank import channels, it inadvertently triggers high-stakes compliance evasion.

               [ GOLD IMPORT DUTY TRANSMISSION LOOP ]
                                  │
       ┌──────────────────────────┴──────────────────────────┐
       ▼                                                     ▼
 [ Official Channels ]                                 [ Informal Channels ]
 • 15% Base Duty + GST = 18.45% Tax                    • Creates 9% Arbitrage Gap vs
 • Landed retail costs spike                            Global Prices
 • Formal demand drops 70%                             • Grey market & smuggling 
   (7.5T vs 25T Fortnightly)                             networks re-activate

The unorganized sector, which historically commands roughly 65% of India’s active gold trade, has been severely hit by the sudden duty escalation. According to historical data modeled by the World Gold Council, maintaining an import duty floor above 10% creates a wide arbitrage gap against international spot rates. This margin comfortably covers the logistics and evasion costs for shadow networks, threatening a massive resurgence in parallel grey-market smuggling pipelines that had completely collapsed when the tariff was slashed down to 6% in 2024.

Domestic industry leaders expect retail volumes to remain flat through June. However, jewelers are betting that the market will gradually digest the new pricing baseline by late July, setting up a potential demand recovery as communities begin preparing for the high-volume autumn festive and winter bridal cycles.

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