The duty cut, effective from July 23, has resulted in a significant drop in gold prices. In Kerala, which dominates the domestic gold market, prices fell from Rs 6,730 per gram to under Rs 6,300 per gram by the end of the weekend. This decrease led to a substantial notional loss of Rs 10.7 trillion on the Multi Commodity Exchange (MCX) as gold prices plummeted by Rs 4,000 per gram.

Despite a 40% rise in gold prices over the past three years, with a 20% increase since April 2024 alone, India remains a major player in the global gold market. In 2023, India consumed 562.3 tonnes of gold, making it the second-largest consumer after China, which used 630 tonnes.

The World Gold Council reported that Indian households collectively held 25,000 tonnes of gold in 2023, representing 40% of the national GDP. According to the Oxford Gold Group, India’s gold reserves account for 11% of the world’s total, surpassing the reserves of the US, Germany, Italy, and the IMF combined.

S Abdul Nazar, director of the All-India Gems & Jewellery Domestic Council (GJC), sees the duty cut as a step towards reducing smuggling, suggesting that lowering the GST on gold from 3% to 1% could eliminate smuggling and parallel trade. He noted that much of the smuggled gold comes from Dubai, Bhutan, Nepal, Africa, and Sri Lanka, where import duties are lower or nonexistent.

MP Ahammed, chairman of Malabar Gold & Diamonds, reported a nearly 60% rise in sales across their showrooms since the budget announcement. This sentiment was echoed by Srikumar Krishnamurthy of Icra Ratings, who revised his forecast from a single-digit decline to a high single-digit growth in retail volumes for the fiscal year.

However, Krishnamurthy warned that potential increases in GST by state governments could dampen future growth prospects. Kerala’s finance minister, N Balagopalan, acknowledged the possibility of proposing such a hike at the next GST Council meeting, despite Kerala being the largest gold market in India.

Krishnamurthy also observed that increased gold imports due to the duty cut are unlikely to significantly impact the current account deficit. The reduction in smuggling, which currently meets 15% of gold demand and affects 65% of the retail market, is expected to offset any potential negative effects.

Justin Palathara, president of the All-Kerala Gold & Silver Merchants Association, highlighted the duty cut’s role in reducing smuggling profits, noting that pre-cut, smugglers could earn up to Rs 9 lakh per kilogram, a figure now reduced to around Rs 3 lakh per kilogram.