The Indian gold jewellery industry is poised for significant growth in the financial year 2025 (FY25), with revenue expected to increase by 13-15%, according to a report by ICRA. This optimistic forecast follows the Indian government's recent decision to reduce import duties on gold bars from 15% to 6%, a move that is anticipated to stimulate demand in the coming quarters.

Key Factors Driving Growth

The reduction in import duties, announced during the presentation of the Union Budget for FY25, has been a key factor in the revised growth outlook. The new duty structure includes a 5% basic customs duty and a 1% agriculture infrastructure development cess (AIDC), compared to the previous rates of 10% and 5%, respectively. This adjustment is expected to lower gold prices, enhance demand for physical gold and jewellery, and curb unofficial imports, thereby boosting the share of organized trade within the sector.

ICRA had earlier projected a revenue growth of 6-8% for FY25, but the more favourable economic conditions and policy changes have led to an upward revision of this estimate. The operating profit margin (OPM) for ICRA’s sample set of 15 large jewellery retailers is now estimated to be between 7.5% and 8% for FY25, up from 7.2% in FY24.

Market Dynamics and Price Adjustments

The Indian gold market experienced significant price increases in FY24, with gold prices rising by over 14%, and by 20% on a year-on-year basis during the first quarter of FY25. However, following the import duty reduction on July 23, 2024, gold prices have seen a correction, declining by around 5%. This price adjustment is expected to play a crucial role in the recovery of demand for gold jewellery in the upcoming quarters.

Demand Trends and Rural Influence

Despite the sharp rise in gold prices, the demand for gold jewellery grew by 2% in FY23 and by 4% in FY24 in volume terms. ICRA notes that a favourable monsoon could further boost rural demand, which accounts for nearly two-thirds of the country’s gold jewellery consumption. This rural demand is likely to be a critical driver of the industry’s growth in FY25.

Industry Outlook

With the reduction in import duties and the expected stabilization of gold prices, the Indian gold jewellery industry is on a path to robust growth. ICRA projects that the return on capital employed (RoCE) will remain around 20%, indicating strong profitability and efficient capital use within the industry.

The combination of policy support, favourable economic conditions, and resilient demand suggests that the Indian gold jewellery sector is well-positioned to achieve significant growth in FY25, continuing its trajectory as a key player in the global market.