The recent increase in import duty on gold has sent ripples through India’s jewellery industry, with the Gem & Jewellery Council (GJC) raising serious concerns about its potential impact. The government’s decision to hike the import duty is viewed as a move that could spell trouble for the legitimate jewellery trade while simultaneously fueling the growth of the grey market in gold.

India, being one of the world’s largest consumers and importers of gold, has a massive jewellery sector that supports millions of livelihoods. The sudden rise in import duty, aimed at curbing fiscal deficit and encouraging local sourcing, has instead sparked fears of unintended negative consequences.

The GJC’s primary apprehension lies in the fact that an increased import duty will push genuine businesses into difficult territory by raising the overall cost of gold. This cost hike translates into higher prices for consumers, which can stifle demand in a price-sensitive market like India. The jewellery trade, already grappling with fluctuating gold prices and economic headwinds, may find itself squeezed between mounting costs and reduced consumer interest.

But beyond the immediate impact on formal businesses, the duty hike is also expected to create fertile ground for the grey market. When official prices rise due to duties, smuggling and under-the-table dealings often thrive as alternative channels to access cheaper gold emerge. The GJC warns that this surge in grey market activities would not only undermine tax revenues but also jeopardize the trust and integrity of the industry.

Historically, similar increases in import duty have been linked with spikes in gold smuggling incidents. Traders and industry experts highlight that higher duties incentivize illegal imports because smugglers can price their goods more competitively compared to legally imported gold burdened by extra taxes. This pattern was observed in past policy changes, fueling the concern that the current hike may repeat history.

Furthermore, the grey market typically operates without the regulatory and quality checks that safeguard consumers in the formal market. This shift could expose buyers to counterfeit products and unfair pricing, damaging the reputation of the overall sector.

In response, the jewellery industry and stakeholders are calling for a balanced approach. They urge the government to consider the delicate ecosystem that sustains the gold trade, emphasizing the need for policies that do not inadvertently cripple legitimate businesses or encourage illegal alternatives.

Some experts suggest that rather than increasing import duties, the government could explore options like incentivizing domestic gold recycling and boosting transparency in the supply chain. Such measures might help manage fiscal goals without harming the industry.

As investors and market watchers observe, the jewellery sector’s outlook may face volatility in the near term. The mixed signals stemming from the duty hike complicate business planning and consumer behavior alike.

Ultimately, the GJC’s warnings highlight the complex interplay between regulation, market dynamics, and consumer protection in one of India’s most treasured industries. How policymakers address these concerns will determine whether the gold trade continues to shine or faces dim prospects shadowed by unofficial markets.