Gold Duty Hike Sparks Market Divide

India's Gold Duty Hike Picks Lenders Over Sellers

By Dev Chandrasekhar

What? 

Indian policy rarely sorts a sector into winners and losers with this much clarity. The Centre on 13 May increased the import duty on gold from 6% to 15%, structured as 10% basic customs duty stacked with a 5% Agriculture Infrastructure and Development Cess. 

India imported 721 tonnes of gold worth $72 billion in FY26, a record by value (up 24%) but slightly lower by volume (down 4.8%), as prices surged from $77,000 to $100,000 per kg.  

However you slice the macro story, gold-linked listed companies now fall into two clear camps. One group's fortunes turn on margin events. The other is simply being carried by favourable conditions. 

This has dealt a blow to listed jewellers who face shrinking customer spending and renewed competition from the grey market. Conversely, the policy hands a massive windfall to gold lenders like Muthoot and Manappuram, whose existing loan books are instantly cushioned by the surging value of their collateral.

What Does This Mean? 

The first cost involves pre-bought inventory. Selling jewellery in India means sitting on a lot of inventory. In that stock, gold is roughly 80% of the price tag. When the duty was cut from 15% to 6% in the July 2024 Union Budget, Kalyan booked a one-time inventory hit of roughly Rs 69 crore in Q2 FY25, and Senco took about Rs 30 crore in the same quarter.

The May 13 reversal delivers the inverse, a revaluation gain on stock already in showrooms. But that is a one-quarter accounting event. The lasting damage sits on the customer. 

The second cost here is the one that doesn't show up in any company's quarterly numbers. It's the loss of formal-sector market share to the grey market. When the duty was cut to 6%, smuggled gold lost its price advantage, and the listed jewellers (Kalyan, Titan, PN Gadgil, etc.) gained share from the unorganised trade. 

Who Gains? 

Muthoot Finance held Rs 1.65 lakh crore in loans on its books in the first nine months of FY26, up 48% from a year earlier, and earned a profit of Rs 7,048 crore over those nine months, up 91%. 

Manappuram Finance ended FY26 with a loan book of Rs 63,798 crore, up 48.3%, of which gold loans alone rose 99.1% to Rs 50,953 crore. South Indian Bank closed the year with Rs 24,729 crore of gold loans, up 45.6%, which is 28% of its retail lending. Every one of these loans is backed by gold whose landed value has just gone up by nine percentage points after the duty hike. 

The cushion between what these lenders have lent and what their collateral is worth widens without a single new loan being written. For fresh loans, the same five grams of pledged jewellery now supports a larger borrowing, with the lender's safety margin intact.

Households that might once have sold jewellery to raise cash will now pledge it instead, because the price is too good to lock in by selling. This tailwind lasts as long as the duty does. 

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Rs 96.25

That’s how low the rupee slid against the US dollar on Monday, marking its weakest level ever and extending a brutal losing streak for the Indian currency. The rupee opened at 96.19 and weakened further in early trade as oil prices surged, foreign investors pulled money out of Indian markets, and the dollar strengthened globally.

Context: The fall comes as the Iran war continues to rattle global energy markets. Brent crude has climbed above $110 a barrel, sharply increasing India’s import bill because the country imports more than 85% of its crude oil needs. Higher oil prices usually push up demand for dollars from Indian refiners, putting additional pressure on the rupee.

In Monday’s The Take, The Core’s Govindraj Ethiraj argued that India now faces a broader currency vulnerability problem. Foreign investors have reportedly pulled over $23 billion from Indian markets since March, while the Reserve Bank of India has spent reserves to slow the rupee’s decline.

The Lead: The rupee has now fallen about 5.5% since the Iran conflict escalated in February, making it Asia’s worst-performing major currency this year.

$275 Million Settlement

The United States Treasury on Monday announced a $275 million settlement with India’s Adani Enterprises, according to Reuters. The settlement comes over the company's apparent violations of US sanctions ⁠on Iran, 32 times.

Context: Adani Enterprises had reportedly purchased liquefied petroleum gas (LPG) shipments from a Dubai-based trader that claimed the cargo was sourced from Oman and Iraq, but the US Treasury’s Office of Foreign Assets Control (OFAC) said the gas actually originated from Iran.

The US Securities and Exchange Commission has also settled another case involving billionaire Gautam Adani over allegations of a bribery scheme involving Indian government officials, according to court records released last week, though the agreement still requires court approval.

What Next: The US Justice Department is reportedly nearing a decision to dismiss related criminal fraud charges against Adani. This comes as Adani has pledged to invest $10 billion in the US economy, according to the Reuters report.

India Sticks With Russian Oil

India on Monday said it will continue buying Russian crude oil irrespective of whether the US extends sanctions waivers, signalling that keeping energy supplies stable remains its top priority. Petroleum Ministry official Sujata Sharma said Indian refiners had been purchasing Russian oil “before waiver, during waiver and now also,” adding that decisions are being driven by commercial and supply considerations, according to a Reuters report.

Overview: The remarks come as Indian households are already feeling the pinch of rising fuel costs. Petrol and diesel prices were increased by Rs 3 per litre last week, the first hike in four years, taking petrol in Delhi to Rs 97.77 per litre and diesel to Rs 90.67. CNG prices in Delhi-NCR have also been revised upward by Re 1 per kg after a recent increase, with distributors citing higher import costs and the weakening rupee.

Context: The pressure is coming from a sharp jump in global crude prices after disruptions around the Strait of Hormuz, a route through which more than half of India’s crude imports normally pass. India imports over 90% of its crude oil needs, making it especially vulnerable when global supply chains tighten. Amid concerns over rising import bills and pressure on foreign exchange reserves, Prime Minister Narendra Modi has urged citizens to cut unnecessary fuel use, work from home where possible, and avoid wasteful consumption.

Spending Cuts?

As India doubles down on securing Russian crude supplies, the government has also reportedly begun tightening spending across the public sector to manage the economic fallout from soaring oil prices and a weakening rupee.

India has directed state-run banks, insurers, and financial institutions to cut discretionary spending as the Iran war pushes up oil prices and weakens the rupee, according to an order reviewed by Reuters. The finance ministry reportedly asked institutions to reduce domestic and foreign travel, hold meetings virtually wherever possible, and limit non-essential expenses. The order also urged them to replace petrol and diesel vehicles with electric vehicles “as far as possible.”

Backdrop: The move comes as India faces mounting economic pressure from surging crude oil prices and a sharply weakening currency. Brent crude has climbed above $110 a barrel amid escalating conflict in West Asia, increasing India’s import bill because the country imports more than 85% of its oil needs.

The Shift: The government appears to be preparing for prolonged economic stress rather than treating the crisis as a short-term oil shock.

Haryana Goes Clean!

The Haryana Cabinet on Monday approved rules requiring all vehicles inducted into the fleets of aggregators, delivery service providers, and e-commerce entities in NCR areas to be CNG, electric, or battery-operated.

Only CNG or electric three-wheeler auto-rickshaws will be permitted for additional induction in the region, in line with directives from the Commission for Air Quality Management.

The Lead: The new framework also mandates licensing for aggregators, passenger safety measures including panic buttons and vehicle tracking, insurance coverage of up to Rs 10 lakh for drivers, and 24x7 grievance redressal mechanisms.

Setup: Separately, Haryana Transport Minister Anil Vij said the state is considering 100% tax exemption on EVs and plans to procure 500 electric buses.

Air India Caught Grounded

Several Air India and Air India Express flights were delayed on Monday after employees of AIASL, the third-party ground handling agency, staged a protest at Mumbai airport demanding a wage hike and other concessions.

In response to queries from The Core, Air India confirmed the disruption but did not share the number of flights affected. “Our airport teams are working closely with all stakeholders to minimise inconvenience to guests and restore normal operations at the earliest,” a company spokesperson said.

Overview: AIASL CEO Rambabu said employees resumed work after management assured them their demands would be reviewed, PTI reported.

Setup: AIASL handles ground operations for 80 airlines across 84 airports in India, managing 650 flights daily with a workforce of 20,000 employees.

Markets Steady as Rupee Falls Again

On Episode 877 of The Core Report, financial journalist Govindraj Ethiraj talks to Prashant Vashisht, Senior Vice President and Co-Group Head at ICRA as well as Shantanu Sahai, Executive Director & Head - Private Credit at ASK Asset & Wealth Management Group.

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