Duty hike spells decadal-low volume for gold jewellery retailers: Crisil

Bengaluru: The organised gold jewellery retail sector in India, comprising jewellery, coins and bars, is expected to witness a further 13-15% on-year decline in sales volume this fiscal, after an 8% contraction last fiscal, due to elevated gold prices and recent policy measures aimed at curbing imports of the metal, according to a report by Crisil Ratings.

Despite the anticipated decline in volumes, the sector is poised to post robust revenue growth of 20-25% on-year, driven by higher realisations. Elevated gold prices are likely to increase inventory holding costs and bank borrowings. However, higher revenues and cash accruals are expected to offset the increased reliance on debt, resulting in stable credit profiles. The analysis is based on 70 gold jewellery retailers that account for about a third of the organised sector’s revenues.

India imported around 720 tonnes of gold in FY2026, resulting in a foreign exchange outflow of nearly $72 billion. “Amid sustained high gold prices and as a measure to reduce the trade deficit and support the currency, the Centre recently raised customs duty on gold. This aims to reduce demand for the precious metal and curb its imports. Consequently, the sector is expected to see its sales volume fall to the lowest level in a decade, excluding the Covid-impacted fiscal 2021,” Crisil said in a statement.

While higher realisations are expected to generate inventory gains for retailers, a part of these gains may be passed on to customers through deeper discounts aimed at supporting volumes.

Domestic gold prices surged 55% last fiscal, driven by rising global prices amid geopolitical uncertainties and the depreciation of the Indian rupee against the US dollar. The sharp rise in prices has affected affordability, leading consumers to shift towards lightweight, lower-carat gold jewellery in the 16-22 carat range, as well as studded jewellery. Conversely, investment demand has gained traction over the past two fiscals, with jewellery sales declining around 25%, while sales of gold bars and coins rose more than 50%.

However, persistently high gold prices and the recent increase in customs duty are likely to dampen demand across segments.

“The Centre’s decision to more than double the customs duty on gold to 15% from 6% will significantly deter demand for gold jewellery. While we are seeing a notable shift towards gold bars and coins driven by investment demand, that is unlikely to fully offset the overall decline in demand. As a result, volumes in the gold jewellery retail sector are expected to decline 13-15% on-year to 620-640 tonnes this fiscal, a level not seen in the past decade,” said Himank Sharma, Director at Crisil Ratings.

However, at the current price of around Rs 1,60,000 per 10 grams (24 carat), realisations are expected to be 35-40% higher on-year this fiscal, supporting stronger cash accruals. “Even as gold bars and coins generate lower value-added revenues, and higher promotional expenses and discounts are incurred to support sales volumes, gold jewellery retailers are expected to see a 20% on-year increase in absolute EBITDA this fiscal,” Crisil said.

This is expected to partly offset the rise in inventory holding costs, with inventory days likely to increase to 160-180 days from 150 days last fiscal, while also supporting retailers’ expansion plans.