Will PM Modi’s Appeal and Duty Hike Trigger a Gold Rush or Gold Pause?

Prime Minister Narendra Modi on May 10 urged Indian households to avoid buying gold jewellery for a year unless necessary. He called it as an act of national economic discipline that came against the backdrop of rising crude oil prices, a weakening rupee, and growing pressure on India's Current Account Deficit (CAD) — a measure of how much more a country spends abroad than it earns.

The next day, the government formalised the signal into policy. The Central Board of Indirect Taxes and Customs notified a duty hike, raising the Basic Customs Duty on gold from 5% to 10% and the Agriculture Infrastructure and Development Cess from 1% to 5%.

According to a report by the Global Trade Research Initiative (GTRI) the total effective import duty on gold — including 3% GST — has now doubled from 9.18% to 18.45%. In practical terms, a shipment of bullion wort h₹100 that previously attracted roughly ₹9.18 in taxes will now attract about ₹18.45.

The Rationality

According to people familiar with the matter, the government is taking these measures so India's foreign exchange reserves could be directed towards essentials — crude oil, fertilisers, defence, and capital goods.

Gold, while culturally significant, is predominantly consumption and investment-driven. With global shipping routes disrupted and energy costs elevated due to the West Asia crisis, policymakers see gold imports as a drain they can moderate without causing economic harm, said the same sources.

The officials also clarify the intent of the measure: it is described as "neither prohibitory nor anti-consumer in nature" but rather "a carefully calibrated and proportionate intervention" designed to moderate non-essential imports during a period of elevated external vulnerability.

Crucially, it notes that customs duty on precious metals has historically moved in both directions in response to macroeconomic conditions — including the Union Budget 2024–25, when duties on gold and silver were cut from 15% to 6%, reflecting a more comfortable external position at the time.

Analysts also found a historical parallel in the appeal. In FY12 and FY13, gold imports surged past $50bn annually, with quantities exceeding 1,000 tonnes. The CAD peaked at around 6.8% of GDP in December 2012, the rupee fell by roughly 20% between January and September 2013, and then finance minister P. Chidambaram made a similar verbal appeal to households to slow down purchases. What followed was a series of progressively tighter interventions — duty hikes, export-linked import rules, bans on gold coins, and restrictions on gold metal loans.

American brokerage firm Jefferies described the current situation as "déjà vu", noting that the CAD and currency situation today is not as dire as it was back then, but that the risk of further tightening remains real depending on how the geopolitical situation evolves.

Are There Panic-Buyers?

This is the central question to Modi's recent public call, and the probable answer is: it depends on which kind of buyer we are looking at.

Aditya Agarwala, co-founder at Investvalue, notes that despite elevated gold prices in FY26, Indian demand did not fall sharply — declining only around 4.76% year-on-year — while the import bill surged by roughly 24% to nearly $72 billion, largely owing to higher international prices and a weak rupee. India's gold imports hit a record $71.98 billion in FY 2025–26, making it the second-largest import line after crude oil.

For investment buyers — those purchasing gold bars, coins, or bullion as a financial asset — the demand hit is likely to be real. Jefferies noted that investment demand should certainly be impacted by higher prices, and that jewellers who sell coins and bars will feel this most acutely.

For wedding and occasion buyers, the picture is a bit murkier. Gold jewellery buying for weddings in India is often non-negotiable, and a price increase does not always kill demand — it sometimes accelerates it. According to recent media reports, in the last two days, sales of bridal jewellery are up 15%-20% compared with average daily sales with some of them even buying for weddings scheduled for end of this year.

"The appeal was leading to some urgent buying for those who have weddings in the upcoming season, but now the duty rise will normalise the panic and people will buy as per their need,” said Suvankar Sen, Co-Chairman of ASSOCHAM's National Council on Commodity Markets & Investments. He added that volumes could dip 10–15% as a result of the customs duty increase.

Agarwala points to ground-level signals that complicate any panic-buying narrative. Gold imports had already collapsed well before the appeal — from approximately 100 tonnes in January 2026 to an estimated 15 tonnes in April 2026, described as a three-decade low outside of COVID lockdowns.

Meanwhile, jewellery stocks on the NSE/BSE fell sharply in the immediate aftermath: Titan dropped as much as 8%, Kalyan Jewellers closed down 9.1%, and Senco Gold fell up to 12% intraday on 11 May — suggesting markets are pricing in demand destruction, not a surge, he said.  

However, there is a countervailing force. The current gold price is already at historic highs. Adding an effective duty burden of over 18% on top of already elevated global prices makes a panic-buy expensive.

The Jefferies note flagged that the key overhang for the market is uncertainty — specifically, whether this duty hike is the end of the policy tightening, or the beginning of a sequence similar to 2013-15.

What Industry Says

The Gem and Jewellery Export Promotion Council (GJEPC) acknowledged the government's move, stating it remains committed to the spirit of "Nation First." The Council said it has written to the Prime Minister with a set of proposals — promoting lower-carat jewellery (14K and 9K) to reduce import dependence by 20-30%, encouraging gold exchange over fresh imports, and revamping the Gold Monetisation Scheme to mobilise India's estimated 25,000 tonnes of household gold stock.

But the GJEPC also pushed back on the economics of duty hikes, noting that despite gold prices doubling in recent years, imports had not declined proportionally. Its position is that higher duties tend to inflate prices rather than curb imports — and that they often encourage smuggling instead. The Council also flagged severe working capital stress for MSME manufacturers, who make up 80% of its membership.

The Smuggling Risk

Both Jefferies and the GJEPC raised the spectre of grey-market gold returning to Indian markets. Historically, duty hikes of this magnitude have incentivised unofficial imports, particularly from border regions and through informal trade channels.

The GTRI report also flagged a structural arbitrage opening up via the India-UAE CEPA trade agreement, where silver from the UAE currently enters at a concessional 7% tariff — now 8 percentage points below the new MFN rate. As that gap widens towards zero by 2031, routing of gold and silver through Dubai could increase significantly, even though the UAE produces neither metal.

The Organised Sector's Buffer

Larger jewellers, particularly Titan, are somewhat better insulated than they were in the 2013-15 cycle. According to Jefferies, gold exchange now accounts for around 50% of Titan's sourcing, reducing dependence on fresh imports.

Domestic sourcing has also developed as an alternative. That said, Jefferies maintained a Hold rating on Titan, with a price target of ₹4,800, noting that share price volatility was likely to remain high until clarity emerges on whether further policy tightening is coming.

Agarwala of  Investvalue highlights a striking institutional paradox as well that even as the Prime Minister urged citizens to stop buying gold, the Reserve Bank of India has been moving in precisely the opposite direction. India's sovereign gold holdings grew from 794.64 MT in September 2025 to 880.52 MT by March 2026, with gold's share of total forex reserves rising from 13.92% to 16.7%. This institutional accumulation reflects a long-term reserve diversification strategy that sits entirely apart from retail jewellery demand — but it does underscore that the metal's strategic value is not in question, only the timing and source of its purchase.

For now, India's gold market sits in an uncomfortable middle ground — prices are high, duties are higher, and the government's intent is clear. Whether consumers read that as a reason to wait, or a reason to buy before things get worse, may well define the next few months for one of the world's largest gold markets.