The Policy Pivot
The Indian government has executed a sharp policy reversal, increasing the import duty on gold to 15 percent, a move designed to stabilize the trade deficit amidst mounting macroeconomic pressures. This decision, implemented in May 2026, marks a stark departure from the government’s July 2024 strategy, when it slashed customs duties to 6 percent to stimulate domestic consumption and deter illicit smuggling.
Context of the Fiscal Shift
The decision to hike duties arrives as India grapples with a depreciating rupee, which has slid from approximately Rs 75 per US dollar in 2021 to below Rs 95 in 2026. Furthermore, escalating geopolitical tensions in West Asia have driven crude oil prices toward USD 110 per barrel, placing immense strain on India’s import bill. By increasing the cost of gold, policymakers aim to curb non-essential outflows of foreign exchange.
Market Reaction: Then vs. Now
The market response to these opposing fiscal policies has been dramatic. Following the 2024 duty cut, spot gold prices dropped from Rs 72,890 to Rs 67,990 within three days, while jewellery stocks surged; Titan rose 7 percent, and Kalyan Jewellers jumped over 10 percent. In contrast, the recent hike has reversed this trend. Spot gold prices spiked from Rs 1,51,783 to Rs 1,62,840, while jewellery stocks faced significant selling pressure, with Titan dropping 9 percent and Kalyan Jewellers falling nearly 16 percent.
Expert Perspectives on Demand
Market experts suggest that the government’s intervention is amplified by broader economic messaging. Following Prime Minister Modi’s recent appeal for citizens to limit non-essential gold purchases, consumer sentiment has begun to cool. Commodity expert Anuj Gupta notes that while gold is a global commodity, domestic policy and high-level political discourse exert a tangible influence on local price discovery and consumer behavior.
Industry Implications
The retail jewellery sector is now bracing for a period of stagnation as consumers weigh the impact of higher prices against their immediate needs. Ajay Kedia, Director at Kedia Advisory, emphasizes that while domestic policy is a factor, the primary driver of future price movement remains global geopolitical instability. As the rupee remains under pressure, the industry anticipates a shift toward inventory management and a potential delay in consumer purchasing cycles over the coming year.
Looking Ahead
Market participants are now closely monitoring central bank gold reserve data and the stability of the rupee against the US dollar. Future price volatility will likely be dictated by the duration of the conflict in West Asia and the resulting impact on global energy prices. Stakeholders should watch for upcoming trade deficit reports to gauge whether the 15 percent duty succeeds in its objective of curbing gold outflows or if global safe-haven demand will continue to override fiscal deterrents.
