Gold jewellery demand could drop this fiscal following customs increase

By

Isabelle Crossley

Published
Jul 20, 2022

Gold jewellery demand in India could decrease by 5% year-on-year to total 550 tonnes this financial year, mainly due to an increase in customs duty driving up retail prices.

Following the increase on gold customs duty from 5% to 12.5% on June 30, the strong demand of last fiscal is expected to stagnate in the 2023 financial year, according to the latest report by ratings agency Crisil, accessed by the Press Trust of India. Because retailers will have to pass on the hike to customers, gold jewellery prices will rise and this will dampen consumer demand. Last year, gold demand was high at 580 tonnes, in part due to pent-up wedding demand due to the pandemic the year before.  
 
“With gold prices increasing due to the import duty hike, gold jewellery retailers will have to adopt innovative sales methods and launch promotional schemes to push sales,” said Crisil Ratings’ director Rahul Guha, the Press Trust of India reported. “Inventory mix will see a shift towards lower-grammage ornaments to make products more affordable, while discounts could be offered on making charges. This will shave off operating margins by 50 basis points to 6.4% to 6.8% this fiscal.”

Jewellery retailers will see their working capital requirement increase this fiscal by up to 35% to 40% year-on-year, according to Crisil. Banks are also taking a cautious stance on funding which is limiting new store additions for many jewellery retail brands.