New Delhi, India – May 24, 2026 – India’s organised gold jewellery retail sector is poised for a challenging fiscal year, with sales volumes projected to decline by a further 13-15 percent year-on-year in FY27. This anticipated drop follows an 8 percent contraction in the previous fiscal, as a confluence of elevated gold prices and a recent customs duty hike continues to erode consumer demand, according to a comprehensive report released by CRISIL. While volumes are expected to slump to a decade-low, excluding the anomalous COVID-affected FY21, the sector is paradoxically projected to achieve a robust revenue growth of 20-25 percent, primarily driven by the escalating value of the precious metal.
The report paints a complex picture for a sector deeply embedded in India’s cultural and economic fabric. Gold, traditionally revered as a symbol of prosperity, a store of value, and an essential component of weddings and festivals, is becoming increasingly unaffordable for a significant segment of the population. The government’s strategic decision to increase the import duty on gold, while aimed at mitigating the nation’s burgeoning Current Account Deficit (CAD) and bolstering the rupee, is simultaneously exerting immense pressure on an industry already grappling with fluctuating global prices.
The Dual Pressure: Soaring Prices and Stiffer Import Duties
The primary drivers behind the projected demand contraction are two-fold: a dramatic surge in domestic gold prices and the recent hike in customs duty. In the previous fiscal, domestic gold prices witnessed an extraordinary 55 percent increase. This sharp appreciation was a direct consequence of escalating global gold prices, fuelled by persistent geopolitical tensions, economic uncertainties worldwide, and a weakening Indian rupee against the formidable US dollar. As investors globally sought safe-haven assets amidst volatility, gold’s allure intensified, pushing its international value upwards, an effect that was amplified domestically by currency depreciation.
Adding another layer of challenge, the government recently raised the customs duty on gold from 6 percent to a significant 15 percent. This move, while intended to serve broader macroeconomic objectives, is expected to act as a substantial deterrent for gold jewellery demand. Himank Sharma, Director at CRISIL Ratings, underscored this point, stating, "The higher customs duty will act as a significant deterrent for gold jewellery demand. While investment demand through gold bars and coins has risen sharply, it is unlikely to fully offset the decline in jewellery purchases." This highlights a critical divergence in consumption patterns, where gold’s role as a financial asset is gaining precedence over its traditional ornamental use.
A Decade’s Low: Volumes Plunge While Revenues Climb
CRISIL’s analysis forecasts that organised jewellers will see volumes fall to an estimated 620-640 tonnes in FY27. This figure represents the lowest level of sales volumes recorded in a decade, with the singular exception of FY21, which was heavily impacted by the unprecedented disruptions of the COVID-19 pandemic. The steady erosion of demand over the past two fiscals has already seen jewellery sales volumes decline by nearly 25 percent, indicating a systemic shift rather than a temporary blip.
Despite this alarming drop in physical volume, the sector is paradoxically poised for robust revenue growth. The projected 20-25 percent increase in revenues is not a reflection of surging consumer purchases, but rather a direct consequence of the higher gold realisations – simply put, each gram of gold sold fetches a much higher price. This scenario, while seemingly positive for top-line figures, masks the underlying struggles of reduced unit sales and the potential for declining profitability margins if operational costs are not meticulously managed. Retailers face the intricate challenge of balancing high-value inventory with dwindling consumer footfall for traditional jewellery items.
Government’s Stance and Economic Imperatives
The government’s decision to increase the import duty on gold is rooted in pressing economic concerns. India, one of the world’s largest consumers of gold, imported approximately 720 tonnes of the yellow metal in FY26. This substantial inflow translated into a significant foreign exchange outflow of nearly USD 72 billion. Such a massive expenditure on a non-essential commodity exacerbates the nation’s Current Account Deficit (CAD), which measures the difference between the money flowing into and out of the country. A high CAD can put pressure on the rupee, making imports more expensive and potentially impacting inflation.
By raising the import duty, the government aims to achieve several critical objectives:
- Curbing Demand: Making gold more expensive domestically discourages discretionary purchases, particularly of jewellery.
- Reducing Imports: A reduction in demand directly translates to fewer imports, thereby conserving precious foreign exchange reserves.
- Supporting the Rupee: By alleviating pressure on the CAD, the government hopes to strengthen the rupee against major global currencies, contributing to overall economic stability.
- Promoting Domestic Value Addition: Indirectly, this measure could also encourage the domestic manufacturing of jewellery using recycled gold or promoting other forms of investment, though its primary focus remains on import control.
While the government’s intentions are clear from a macroeconomic perspective, the immediate impact on the domestic gold industry, particularly its retail segment, is undeniably severe.
Shifting Tides in Consumer Preferences
The sustained high prices and increased duty have compelled a noticeable shift in consumer behaviour. The CRISIL report highlights a growing inclination among buyers towards lightweight and lower-carat jewellery, typically in the 16-22 carat range. This strategic adjustment by consumers is a direct response to affordability pressures, allowing them to continue purchasing gold for cultural or traditional purposes without incurring exorbitant costs. Simultaneously, demand for studded jewellery, which often incorporates diamonds or other precious stones and uses less gold by weight, has also witnessed a rise. This trend suggests a move towards value-added products that offer aesthetic appeal without the pure weight-based cost of traditional gold ornaments.
Culturally, gold holds immense significance in India. It is integral to wedding ceremonies, religious festivals like Diwali and Akshaya Tritiya, and is often considered an auspicious gift and a vital component of a family’s heirloom. The shift towards lighter jewellery signifies an adaptation to economic realities while attempting to preserve these deep-rooted traditions. However, it also underscores a growing disconnect between the aspirational value of gold and its practical accessibility for many households.
Conversely, the report notes a significant surge in investment-driven gold buying. Over the past two fiscals, while jewellery sales volumes plummeted by approximately 25 percent, demand for gold bars and coins soared by more than 50 percent. This indicates that a segment of the population, likely those with higher disposable incomes, continues to view gold as a crucial investment avenue, a hedge against inflation, and a safe harbour in uncertain times. However, as Himank Sharma pointed out, this rise in investment demand is insufficient to offset the substantial decline in jewellery purchases, which traditionally accounts for the lion’s share of India’s gold consumption.
Retailers Adapt: Strategy and Expansion Amid Headwinds
In response to the evolving market dynamics, organised gold jewellery retailers are demonstrating resilience and strategic adaptability. Gaurav Arora, Associate Director at CRISIL Ratings, noted that these retailers are continuing their expansion plans, albeit with caution. A key strategy involves leveraging franchise-led models to improve capital efficiency. By partnering with local entrepreneurs, retailers can expand their geographical footprint into Tier II and Tier III cities – markets that often represent untapped potential and exhibit a strong cultural affinity for gold – without incurring the full capital expenditure of company-owned stores. This model allows for faster market penetration and better risk distribution.
Despite the challenging environment, the credit profiles of organised retailers are expected to remain stable. While overall debt levels are projected to rise by nearly one-third this fiscal due to higher inventory requirements (given the increased value of gold), this is anticipated to be offset by stronger revenues and healthy cash accruals. The organised sector benefits from better access to financing, professional management, and greater transparency, allowing them to navigate these headwinds more effectively than their unorganised counterparts. Their ability to manage inventory, leverage branding, and adapt to consumer preferences for lighter or studded jewellery positions them to absorb some of the shocks.
However, the unorganised sector, comprising numerous small and independent jewellers, faces a more precarious future. These players often operate on thinner margins, have limited access to formal credit, and may struggle with inventory management in a high-price, low-volume environment. The widening price gap between official channels (with duty) and potential grey market alternatives could also pose a significant challenge, creating an uneven playing field.
Broader Economic Ripples and Industry Reactions
The implications of the gold import duty hike and soaring prices extend beyond the immediate retail sector. From an economic standpoint, the government’s move, while essential for CAD management, carries risks. A substantial duty differential can inadvertently fuel gold smuggling, leading to a parallel informal economy that evades taxes and undermines legitimate businesses. This not only results in revenue losses for the government but also creates unfair competition for organised players who adhere to all regulations.
Industry bodies, such as the All India Gem and Jewellery Domestic Council (GJC), have consistently advocated for a balanced approach. While acknowledging the government’s need to manage imports, they often highlight the industry’s significant contribution to employment and its cultural importance. They typically argue that excessively high duties can cripple legitimate trade, encourage illicit activities, and ultimately harm the very artisans and craftsmen who form the backbone of this labour-intensive industry. Their proposed solutions often include rationalising duty structures, providing support for skill development, and promoting responsible sourcing.
Economists also weigh in on the broader impact. High gold prices, while boosting revenue for sellers, can divert discretionary spending away from other consumer goods, potentially impacting overall economic growth. For the average Indian household, gold has long served as an informal savings instrument. The reduced accessibility of gold jewellery could compel households to seek alternative savings avenues, potentially accelerating the financialisation of savings in India, moving away from physical assets towards bank deposits, mutual funds, and other financial instruments. This shift, while beneficial for the formal financial system, might require significant public awareness and education.
The Road Ahead: Navigating Uncertainty
The coming fiscal year (FY27) will be a critical period for India’s gold jewellery sector. The interplay of global economic trends, domestic policy decisions, and evolving consumer preferences will shape its trajectory. For organised retailers, strategic agility, innovation in design, and a continued focus on expanding into underserved markets will be crucial. Adapting product portfolios to align with affordability constraints – such as promoting lighter designs, studded options, and perhaps even innovative subscription or exchange schemes – will be key to sustaining demand.
The government, on its part, will need to carefully monitor the effects of its import duty policy. While curbing imports is a priority, ensuring the long-term health and viability of a culturally significant and economically important industry is equally vital. A review of duty structures based on their actual impact on smuggling, legitimate trade, and overall economic indicators might be warranted in the future.
Ultimately, India’s relationship with gold is undergoing a profound transformation. While its cultural significance remains undiminished, its accessibility as an ornamental asset is being redefined by economic realities. The sector’s ability to innovate, adapt, and articulate its challenges effectively to policymakers will determine its resilience in navigating this period of unprecedented change. The CRISIL report serves as a stark reminder that even in a market as deeply rooted in tradition as India’s gold sector, external forces and policy decisions can rapidly reshape its landscape, demanding strategic foresight and dynamic responses from all stakeholders.
