India’s decision to slash import duties on gold is bearing fruit as local prices have since dropped while gold jewellery demand is improving, a World Gold Council (WGC) research paper showed.

The Indian government reduced taxes on gold and silver imports to 6 per cent from 15 per cent in July in a bid to bolster demand and combat smuggling.

India is the world’s second largest gold jewellery consumer after China.

A research paper by Kavita Chacko, WGC Research Head, India, revealed that import reductions have resulted in domestic gold prices falling by 6 per cent since the cut took effect. However, prices saw a 10 per cent year-to-date uptick due to strong global gold prices.

Citing industry reports, Chacko said lower import duties also lifted consumer demand ahead of India’s festive season. 

“The significant cut in import duty on gold and the resultant decline in the landed cost of gold have been a shot in the arm for gold demand in the country,” she noted. “Anecdotal reports suggest that there has been strong buying interest from jewellery retailers as well as consumers since the duty reduction.”

The research paper quoted jewellery manufacturers at the India International Jewellery Show, held from August 8 to 13, 2024, as saying that there was a substantial increase in orders from retailers who are preparing for India’s wedding season, which runs through December. 

Additionally, the trend of bar and coin buying remains strong, supported by consumers as well as jewellers who are capitalising on supportive gold prices to stock up for future manufacturing.

Citing past WGC analyses, Chacko said cutting import duties back in 2012 created headwinds for jewellery demand, with an even more noticeable impact on bar and coin sales. 

“Our econometric model suggests that Indian consumer demand – the sum of jewellery and bar and coin demand – could see an additional 50 tonnes or more in the second half of 2024,” shared Chacko. “This is through a combination of an initial boost in consumer appetite given the more attractive price as well as a longer-term effect as local prices align more closely with the international price.”