Higher gold prices, import duty hike likely to weigh on demand despite strong revenue growth
India’s organised gold jewellery retail sector is expected to witness another steep fall in sales volumes this fiscal, with demand likely to decline 13-15 per cent year-on-year after an 8 per cent contraction last year, according to a report by Crisil Ratings released on Friday.
The report stated that elevated gold prices and the recent increase in customs duty on gold are expected to significantly impact affordability and suppress consumer demand across segments.
Revenue Growth To Stay Strong
Despite weaker volumes, organised jewellers are projected to record a robust 20-25 per cent year-on-year rise in revenues during the fiscal, driven largely by higher realisations.
According to the report, rising gold prices will increase inventory holding costs and push up reliance on bank borrowings. However, stronger revenues and healthy cash accruals are expected to offset the impact of higher debt, helping maintain stable credit profiles for organised retailers.
India imported around 720 tonnes of gold in FY26, resulting in a foreign exchange outflow of USD 72 billion.
To reduce imports, narrow the trade deficit and support the rupee amid persistently high gold prices, the government recently raised customs duty on gold to 15 per cent from 6 per cent. The report noted that the move could drag jewellery sales volumes to their lowest level in a decade, excluding the Covid-affected FY21.
Retailers are also expected to benefit from inventory gains due to rising prices, although a portion of these gains may be passed on to consumers through deeper discounts aimed at supporting demand.
Shift In Consumer Preferences
Domestic gold prices surged 55 per cent in the previous fiscal, driven by higher global bullion prices amid geopolitical uncertainties and the depreciation of the Indian rupee against the US dollar.
The sharp rise in prices has weakened affordability, prompting consumers to shift towards lightweight jewellery, lower-carat products in the 16-22 carat range and studded jewellery.
At the same time, investment-led demand for gold has strengthened over the last two fiscals. Jewellery sales have declined 25 per cent, while sales of gold bars and coins have risen more than 50 per cent.
However, the report cautioned that persistently elevated gold prices and the customs duty hike are likely to dampen demand across all segments.
“The government’s decision to more than double the customs duty on gold will be a significant deterrent to demand for gold jewellery. While we see a notable shift towards gold bars and coins driven by investment demand, that is unlikely to fully offset the decline in overall demand. As a result, the volume of the gold jewellery retail sector will decline 13-15 per cent YoY to 620-640 tonnes this fiscal, a level not seen in the past decade,” Crisil Ratings Director Himank Sharma said.
Expansion Through Franchise Model
Crisil Ratings Associate Director Gaurav Arora said organised retailers are continuing to expand cautiously through franchise-led models, improving capital efficiency and expanding their presence in tier 2 and 3 cities.
“While overall debt will increase by a third this fiscal to maintain higher inventory levels for new and existing stores, credit profiles will remain stable, supported by improved revenues from higher realisations and healthy cash accruals,” he stated.
The report added that volatility in gold prices, further regulatory changes, revisions in import duty and changing consumer sentiment will remain key risks for the sector going forward.
