Duty cut boosts gold jewelers’ sales by 35-40 per cent

MUMBAI: The duty cut on gold imports—from 15 to 6 per cent in the latest Budget—has not only delighted customers but also brought significant relief to gold retailers. They had been struggling due to soaring prices until recently, facing a stagnant market. However, since the duty reduction, showrooms are witnessing a massive influx of customers, with sales already soaring by 35-40 per cent nationwide.

Post the July 23 duty cut, the retail price of gold in Kerala, which controls about 40 per cent of the domestic market, dropped from Rs 6730/g to under Rs 6,300/g by the weekend. On the MCX (Multi Commodity Exchange), this price drop caused a notional loss of Rs 10.7 trillion in investor wealth on budget day, as gold prices plummeted by a drastic Rs 4,000/g in a knee-jerk reaction.

Over the past three years, gold prices have surged by over 40 per cent, with a 20 per cent increase since April 2024 alone. Despite this, India remains the world’s second-largest consumer of gold, with 562.3 tonnes consumed in 2023, just behind China’s 630 tonnes.

According to the World Gold Council, Indian households collectively owned 25,000 tonnes of gold in 2023, equivalent to 40 per cent of the national GDP. A report from the Oxford Gold Group earlier this year claimed that India holds 11 per cent of the world’s gold, surpassing the reserves of the US (8,133.5 tonnes), Germany (3,359 tonnes), Italy (2,451.8 tonnes), and the IMF combined.

S Abdul Nazar, director of the All-India Gems & Jewellery Domestic Council (GJC), highlighted the benefits of the duty cut beyond customers, predicting a sharp decline in smuggling. He suggested that further reducing GST on gold from 3 to 1 per cent could eradicate smuggling and parallel trade entirely.

Nazar also pointed out that much of the smuggled gold originates from Dubai, where import duties are zero, as well as from Bhutan, Nepal, Africa, and Sri Lanka.

MP Ahammed, chairman of Malabar Gold & Diamonds, the largest jewelry retail chain in terms of revenue, reported a nearly 60 per cent increase in sales across their showrooms since the budget announcement.

Srikumar Krishnamurthy, senior vice-president & co-group head of corporate ratings at Icra Ratings, expressed optimism about the positive impact of the duty cut on gold retailers’ volumes for the current fiscal year. He initially forecasted a single-digit decline but now anticipates a high single-digit volume growth.

Krishnamurthy cautioned, however, that potential GST hikes by states could dampen future prospects. When contacted, N Balagopalan, finance minister of Kerala, acknowledged the possibility of proposing such a hike at the next GST Council meeting, despite Kerala being the largest gold market in India.

Krishnamurthy further noted that increased gold imports following the duty cut are unlikely to spike the current account deficit, stressing that the move would effectively combat smuggling, which currently accounts for 15 per cent of gold demand and affects 65 per cent of the retail industry, dominated by unorganized players.

Justin Palathara, president of the All-Kerala Gold & Silver Merchants Association, highlighted the significant impact of the duty cut on curbing smuggling, emphasizing that pre-cut, smugglers could earn up to Rs 9 lakh/kg, a figure now reduced to about Rs 3 lakh/kg.