The Indian organized gold jewelry retail sector is projected to experience a robust revenue growth of 20-25% year-on-year in the current fiscal year. This growth is primarily attributed to higher realizations, even though there is an anticipated decline in volume due to elevated gold prices and recent measures to restrict metal imports. A report by Crisil highlighted that the surge in gold prices will lead to increased inventory holding costs and higher bank borrowings.
Despite the positive revenue outlook, the organized gold jewelry retail sector is expected to witness a further decline in sales volume by 13-15% this fiscal year. This decline follows an 8% contraction in the previous fiscal year, mainly due to the high gold prices and recent policies aimed at curbing metal imports. In the fiscal year 2026, India imported 720 tonnes of gold, resulting in a foreign currency outflow of $72 billion.
In response to sustained high gold prices and to address the trade deficit, the central government recently raised customs duty on gold. This move is intended to reduce the demand for gold and limit its imports. Consequently, the sector is predicted to observe a significant drop in sales volume, reaching the lowest level in a decade, excluding the pandemic-affected fiscal year 2021, as per the report.
The decision by the central government to more than double the customs duty on gold to 15% from 6% is expected to significantly deter the demand for gold jewelry. While there may be a shift towards gold bars and coins driven by investment demand, it is unlikely to fully compensate for the overall decline in demand. Himank Sharma, Director at Crisil Ratings, emphasized that the volume of the gold jewelry retail sector is anticipated to decrease by 13-15% this fiscal year, reaching 620-640 tonnes, a level not witnessed in the past decade.
Although the rise in realizations will result in inventory gains for retailers, some of these gains might be passed on to customers through deeper discounts to stimulate volume sales. The report also pointed out that increased promotional expenses and the trading of gold bars and coins will exert pressure on retailers’ gross margins. It highlighted the importance of monitoring steep fluctuations in gold prices, regulatory changes, import duties on gold, potential government restrictions on gold purchases, and shifts in consumer sentiment.
