A small policy shift can often trigger wide market reactions, especially when it involves gold and silver. In India, where precious metals are closely tied to savings, celebrations, and investments, even subtle changes can set the market buzzing.
In the Union Budget, the Finance Minister announced a reduction in the import duty on gold and silver from 6% to 5%. Though the cut may seem modest, the Budget India announcement has sparked discussions across the jewellery industry due to its potential effect on prices, demand, and overall market sentiment.
In this blog, we will explore how this import duty reduction could influence jewellery prices and what it signals for the broader precious metals market in India.
What the Import Duty Reduction Really Means
For years, the import duty on gold and silver has been closely watched because of how strongly it affects prices and trade in India. The government’s decision to bring the customs duty down to 5% marks a clear change in its approach to these precious metals.
The aim behind this move is twofold. It seeks to encourage more jewellery manufacturing and value addition within the country, while also reducing the incentive for smuggling by narrowing the price gap. Coming after the 6% duty announced in Budget 2025, this further reduction shows a continued push towards a more balanced and sustainable precious metals market.
Impact on Gold and Silver Prices
The reduction in import duty is expected to make gold and silver slightly cheaper in the domestic market. Since the tax on imported gold has come down to 5%, the overall cost for jewellers reduces, which usually reflects in prices. After the announcement, 24K gold prices fell by around ₹4,000 per 10 grams, while silver dropped by nearly ₹4,500 per kg, showing an immediate market reaction.
That said, gold and silver prices are not driven by duty changes alone. Global prices, currency movements, and geopolitical tensions continue to play a major role. While the duty cut may help consumers save ₹2,000–₹2,500 per 10 grams on jewellery, future price movements will still depend on factors like international gold rates and the rupee–dollar exchange rate.
Rising Demand and Investment Interest in Gold and Silver
A key objective of the Union Budget duty reduction is to stimulate domestic demand for gold and silver. When customs duty comes down, prices tend to ease, making gold and silver more affordable for a larger section of buyers. This is especially important in a price-sensitive market like India, where even small reductions can influence purchasing decisions.
Lower prices are expected to encourage higher buying of gold and silver jewellery, coins, and bars, particularly during festive periods such as Diwali and Dhanteras 2026. Along with consumption, investment in gold is also likely to rise, as more people may see it as a safer and more accessible investment option. Industry estimates suggest this combined demand could lead to a 25–30% increase in purchases during the festive season.
Implications for the Indian Jewellery Market
The import duty cut on precious metals is likely to be good news for the jewellery market. With raw material costs coming down and support from MSME schemes, jewellers get much-needed breathing space to rethink pricing, plan inventory better, and explore growth opportunities.
Increased Sales
With lower import costs translating into more attractive prices, jewellers may see higher footfall and stronger sales. This impact is likely to be most visible during festive and wedding seasons, when demand for gold traditionally peaks.
Stronger Competitive Position
A more balanced duty structure can help Indian jewellers price their products more competitively. This strengthens their position not just in the domestic market but also against international players.
Improved Export Potential
Reduced input costs can make Indian jewellery market more cost-effective in global markets. This could support higher exports by improving margins and enhancing India’s appeal as a jewellery manufacturing and sourcing hub.
Broader Economic Implications
While the import duty cut on gold and silver is likely to support higher demand, it also comes with wider economic considerations that go beyond the jewellery market.
Impact on the Trade Deficit
As gold becomes more affordable to import, volumes may increase. Since gold is already a significant part of India’s import basket, higher imports could contribute to a widening of the trade deficit.
Effect on the Indian Rupee
An increase in gold imports often leads to greater demand for foreign currency. In the short term, this could place added pressure on the Indian rupee, particularly if global gold prices remain elevated.
Other Key Policy Updates for the Sector
Alongside the import duty cut, the Union Budget also introduced several policy updates affecting the gems and jewellery sector. These moves are aimed at refining investment rules and strengthening domestic manufacturing in emerging segments of the gems and jewellery ecosystem.
Changes to Sovereign Gold Bonds (SGBs)
The capital gains tax exemption on Sovereign Gold Bonds has been streamlined. Going forward, this benefit is limited to original subscribers who hold the bonds until maturity, bringing more clarity and structure to gold-linked investments.
Support for Lab-Grown Diamonds (LGDs)
To encourage domestic production of lab-grown diamonds, the government has extended duty-free imports of LGD seeds until March 2028. This step is expected to support innovation, reduce costs for manufacturers, and help India strengthen its position in this growing segment.
Looking Ahead
Collectively, the measures outlined in Budget India are shaping a more supportive environment for Indian manufacturing. Lower input costs, simplified trade processes, and stronger MSME support are creating room for businesses to plan ahead, invest with confidence, and focus on long-term growth rather than short-term hurdles.
As MSME jewellers look to scale operations and tap new opportunities, having access to the right financial support becomes just as important. Lendingkart offers quick, digital business loans that help MSMEs manage working capital, expand capacity, and stay growth-ready in a changing market.
Frequently Asked Questions (FAQs)
- Who pays the import duty on gold and silver?
The duty is paid by importers at the time of bringing gold or silver into the country. This cost is usually passed on through the supply chain and reflected in market prices.
- Can import duty changes affect the gold price in India even if global prices stay the same?
Even if international prices remain stable, a change in import duty can push the domestic gold rate up or down by altering the cost of importing gold into India.
- Is import duty charged on digital gold or gold ETFs?
Import duty is not charged directly on digital gold or gold ETFs. However, since these products track domestic gold prices, any duty-related price change can influence their value.
- Why is gold import duty important for the Indian economy?
Gold imports have a major impact on India’s trade balance and foreign exchange reserves. Import duty is used as a policy tool to manage import volumes and reduce pressure on the economy.
