Gold comments by India's Modi, oil shock stoke tariff fears; jewellery stocks slide

MUMBAI: Indian Prime Minister Narendra Modi’s call to avoid gold purchases for a year to help protect foreign exchange reserves fuelled concerns of higher import tariffs on the metal, sending shares of Indian jewellery retailers lower.

The Iran war has sent oil prices surging and that in turn has resulted in mounting pressure on India’s balance of payments and the rupee. India is the world’s third-largest oil importer and consumer, meeting more than 90% of its crude oil needs and about half of its natural gas demand through imports.

Modi’s remarks about gold on Sunday came along with a range of other measures he urged, including fuel conservation, increasing working from home and limits on travel and imports.

Gold is in high demand in India, particularly for weddings where gold jewellery is seen as a crucial part of a bride’s attire and is a popular gift from family and friends. While it is the world’s second-largest gold consumer, India relies on imports to meet nearly all of its demand.

Shares of jewellery makers such as Titan, Senco Gold and Kalyan Jewellers fell between 6% and 9% on Monday.

“There are concerns that the government might sharply increase import duty on gold for a year to discourage imports,” said Surendra Mehta, national secretary at the India Bullion and Jewellers Association. “Duties could be raised even higher than levels seen in recent years.”

In 2012 and 2013, New Delhi hiked tariffs on gold imports to stabilise a rapidly depreciating rupee. Now, jewellers fear that duty cuts made in 2024 to 6% from 15% to curb smuggling could soon be reversed.

A government source said on Monday, however, that India has no plans to raise duties on gold and silver imports.

India’s balance of payments is expected to deteriorate sharply this April-March fiscal year to a deficit of about $66 billion to $70 billion, compared with an estimated $26 billion to $28 billion in 2025-26.

Pressure on the rupee has prompted the central bank to sell the dollar and limit the size of trading positions that banks can take. It has also clamped down on arbitrage trades.

The Indian rupee closed at a record low of 95.31 to the dollar on Monday.

Senior government officials said on Monday India has sufficient gasoline and diesel supplies.

But, fuel retailers incur losses of about 100 rupees ($1.05) per litre on diesel and 20 rupees per litre on gasoline by selling the fuels below market rates.

State retailers have not raised gasoline and diesel prices since April 2022.