Shalini S Sharma
NEW DELHI: Prime Minister Narendra Modi’s appeal some days back to curb fresh gold purchases, paired with the subsequent spike in import duties from 6 per cent to 15 per cent, has fundamentally disrupted India’s multi-billion-dollar gold ecosystem.
It has catalysed an unprecedented shift from a linear consumption economy (import-consume-hoard) to a circular loop economy (recycle-exchange-remanufacture).
When jewellers launch campaigns urging customers to “exchange old gold for new,” they are not merely running a marketing promotion; they are executing a strategic macroeconomic pivot to keep their workshops running without triggering massive dollar outflows.
Economics of exchange
The math of the old-for-new exchange system relies entirely on bypassing the international bullion market.
Under normal circumstances, when one buys a gold necklace, the jeweller imports fresh bullion from places like Zurich or Dubai, melts it down, crafts it, and sells it. This transaction requires an outflow of US dollars from India’s foreign exchange reserves.
In case of exchange of old jewellery, the jeweller takes the existing gold, tests its purity (caratage) using an X-ray fluorescence (XRF) machine, melts it down locally, refines it to 24-carat purity if necessary, and uses it as the raw material for a new piece.
The consumer pays only for the “making charges” (labour costs) and the “wastage / melting loss” (usually 3 per cent to 5 per cent of the weight, though competitive pressures are forcing jewellers to waive this). If one swaps a 50-gram old necklace for a new 50-gram design, the cash outgo is a fraction of buying a new piece from scratch.
The jeweller secures raw material without paying the newly hiked 15 per cent customs duty. They sustain their business volume and earn revenue on manufacturing premiums.
Yellow allure
India is the world’s second-largest consumer of gold, and its import bills heavily influence the country’s macroeconomic health.
In fiscal 2025-26, India’s gold import bill hit a staggering record of $71.98 billion, despite a slight drop in actual volume to 721.03 tonne. This massive cash outgo was driven by skyrocketing global prices (hovering around $100,000 per kg). This expenditure severely strains India’s merchandise trade deficit and puts pressure on the Indian rupee.
If the national “exchange and recycle” campaign successfully shifts even 30 per cent of domestic retail demand from freshly imported gold to recycled household gold, India would slash its import volumes by roughly 216 tonne.
At current elevated prices, this translates to a massive direct foreign exchange saving of approximately $21.5 billion annually. This capital can instead be used to import essential commodities like crude oil, defence equipment, and high-tech capital goods.
Bullion business
Small family-owned jewellers do not directly ring up bullion desks in Switzerland to purchase gold. The import architecture is highly regulated and centralised to prevent illegal capital flight.
Gold is imported primarily through a select group of designated entities authorised by the Reserve Bank of India (RBI) and the Directorate General of Foreign Trade (DGFT). These include large public sector banks (like SBI), specialised state trading enterprises (like MMTC), and private banks with bullion desks.
Increasingly, centralised buying is shifting to the India International Bullion Exchange (IIBX) located in GIFT City, Gujarat. Qualified jewellers can buy directly through this transparent, automated trading platform.
Once these central hubs import the large 1-kg bars, they sell them to domestic wholesale bullion dealers, who split them into smaller tranches (like 100g bars or dore bars) for retail jewellers and local artisans.
Impact on fortunes of jewellers
The “stop buying” appeal initially sent shockwaves through the stock market, wiping out nearly ₹60,000 crore in investor wealth across listed entities like Titan (Tanishq), Kalyan Jewellers, and Senco Gold. However, large retail chains are well-positioned to survive. They possess the technology for transparent purity testing, the marketing budgets to scale “old-for-new” campaigns, and structural access to institutional Gold Metal Loans (GML). They will likely consolidate their market share as consumers look for trusted brands to evaluate their old family gold.
It is the traditional artisans or karigars whose livelihoods are truly at stake. The Indian gems and jewellery sector employs over 4.3 million skilled artisans and goldsmiths. If overall transaction volumes drop because consumers defer weddings or festive purchases due to high prices, these daily-wage craftsmen face immediate income loss.
However, if the exchange model thrives, the demand for remoulding and redesigning will keep these workshops busy, shielding them from severe unemployment.
Beyond necklaces and rings
While jewellery and retail investment (bars/coins) gobble up over 90 per cent of India’s gold, the remainder is used by critical, non-discretionary industrial sectors:
| Sector | Primary applications | Strategic response to import curbs |
|---|---|---|
| Electronics & technology | Smartphones, microchips, high-performance connectors, and aerospace circuitry due to gold’s excellent conductivity and corrosion resistance. | Urban mining: Companies are scaling up electronic waste (e-waste) recycling plants to extract gold from discarded circuit boards. They are also shifting to copper and silver alloys wherever performance thresholds permit. |
| Healthcare & dentistry | Precision dental crowns, bridges, rapid diagnostic test kits (using colloidal gold), and targeted cancer therapies. | Pass-through costs: Because the volume used per medical device or dental implant is minuscule, these sectors typically absorb the 15% duty hike and pass the cost to the consumer, as substitution is medically unviable. |
In fiscal 2025-26, India’s gold import bill hit a staggering record of $71.98 billion, despite a slight drop in actual volume to 721.03 tonne. This massive cash outgo was driven by skyrocketing global prices (hovering around $100,000 per kg). This expenditure severely strains India’s merchandise trade deficit and puts pressure on the Indian rupee.
Mines at home
For generations, the Indian household has operated as an informal, decentralised central bank. It is estimated by the World Gold Council that Indian citizens privately hold more than 25,000 to 30,000 tonnes of gold — dwarfing the official reserves of most Western nations combined.
This massive accumulation is deeply tied to India’s socio-economic history. Before the proliferation of modern banking, mutual funds, and digital apps, gold was the only accessible, liquid, and inflation-proof financial tool for rural and semi-urban populations. It required no paperwork, knew no language barriers, and could be instantly pawned or sold during droughts, medical emergencies, or crop failures.
Crucially, gold in India carries a profound gendered significance known as ‘Streedhan’—wealth traditionally gifted to a woman at her wedding. Historically, under various traditional property laws, physical gold was one of the few forms of wealth that belonged exclusively to a woman, providing her with an autonomous financial safety net within her marital home.
This historical accumulation means that while Western economies store their national wealth in sovereign bank vaults and yield-bearing securities, India’s wealth is distributed across millions of family lockers in the form of heavy bangles, intricate necklaces, and celebratory coins.
This gold is completely static; it earns no interest, produces no economic dividends, and remains locked away from the formal financial system. When international gold prices skyrocket, this massive, dormant asset base becomes a double-edged sword: It represents incalculable private wealth, but its constant renewal via fresh imports strains the country’s current account balance.
X-factor in exchange
Traditional gold mining requires turning over tonne of rock, consuming vast quantities of water, and using toxic chemicals like cyanide, all while spending significant energy.
By contrast, the process of recycling domestic gold — often referred to as “urban mining”—operates at a fraction of the cost and environmental footprint. When an old piece of jewellery is exchanged, it undergoes a swift, localised refining loop. The gold is melted down, separated from base alloys like copper or silver through chemical refining or electrolysis, and restored to 99.9 per cent or 99.5 per cent purity.
From an infrastructure perspective, this process takes less than 48 hours when managed through certified Collection and Purity Testing Centres (CPTCs). The economic efficiency is staggering: by sourcing raw material from the domestic public, jewellers completely bypass the 15 per cent import tariff, avoid international shipping and insurance costs, and eliminate the risk of geopolitical supply chain disruptions.
This continuous recycling loop injects immediate liquidity into the domestic manufacturing sector. Instead of capital leaving the country as foreign exchange to clear invoices in Zurich or Dubai, the money remains within the domestic borders, circulating through local refining plants, assaying laboratories, and artisanal design studios.
The circular model effectively transforms the jewellery industry from an import-dependent luxury trade into a self-sustaining domestic manufacturing ecosystem.