Gold Demand Plunges 70% After Import Duty Hike, Iran War Impact

India's gold demand has slumped around 70% since the government more than doubled import duty on the precious metal earlier this month, as higher prices and rising household expenses discouraged purchases.

Industry estimates show demand fell to about 7.5 tonnes in the fortnight ended May 27, compared with around 25 tonnes during the same period last year. The sharp decline follows the government's decision to raise gold import duty to 15% from 6% with effect from May 13.

The move significantly increased the overall tax burden on gold. Including GST, the effective tax incidence has risen to 18.45% from 9.18%, making purchases considerably more expensive for consumers.

The duty increase came amid a weak rupee, elevated crude oil prices and geopolitical tensions linked to the Iran conflict. The government also tightened import rules and capped duty-free imports under the Advance Authorisation Scheme as part of efforts to curb foreign exchange outflows.

Demand Hit By Rising Costs

Jewellers said the higher duty has added to already weak consumer sentiment, with households facing increased fuel and food expenses amid the ongoing energy crisis.

The slowdown could weigh on investment demand during the second quarter of 2026 after a strong start to the year. Industry participants expect entry-level buyers to remain cautious until prices stabilise.

India consumes roughly 800-850 tonnes of gold annually. On Friday, gold of 999 purity traded at around ₹1.57 lakh per 10 grams in Mumbai's spot market, excluding GST.

The impact of higher prices is already visible across the jewellery sector. According to a recent Crisil report, volumes for gold jewellery retailers fell 8% in FY26 and could decline another 13-15% this fiscal to 620-640 tonnes, the lowest level in a decade excluding the pandemic-hit year of FY21.

The analysis was based on 70 organised jewellery retailers that account for roughly one-third of the sector's revenues.

Revenue Growth Despite Lower Volumes

While demand has weakened, jewellers are still expected to report strong revenue growth because of higher gold prices.

Crisil estimates the sector could achieve revenue growth of 20-25% this financial year as realisations rise sharply. At current prices of around ₹1.6 lakh per 10 grams, average realisations are expected to be 35-40% higher year-on-year.

Meanwhile, investment demand remained relatively resilient earlier in the year. India's bar and coin demand rose 34% year-on-year to 62.3 tonnes during the March quarter.

Globally, gold prices have also remained volatile. Spot gold recently touched a two-month low before recovering on reports of a possible extension of ceasefire discussions between the US and Iran.