PM Modi's appeal working? Gold demand drops 70% after duty hike, rising costs

India voracious appetite for gold has suddenly atrophied, with demand plummeting a staggering 70% in late May 2026 following a sharp import duty hike by the Modi government and relentless international price increases. The dramatic contraction, to just 7.5 tonnes in the fortnight ending May 27 from 25 tonnes a year prior, signals a direct hit to the nation's traditionally strong bullion market, pushing domestic prices to record highs. This steep decline is a calculated outcome of the Ministry of Finance recent decision, under Prime Minister Modi's economic push, to increase the gold import duty to 15% from 12.5% in early May, aimed at reining in the widening current account deficit. Compounding this, benchmark international gold prices have surged past $2,400 per ounce, driven by persistent global inflation concerns and geopolitical instability, making imported gold prohibitive for many Indian consumers and jewelers. The Reserve Bank of India has also signaled concerns over non-essential imports. The immediate fallout is a paralyzed bullion market, with significant drop in consumer footfall and inventory build-up for retailers, particularly post-Akshaya Tritiya which saw a muted response this year. Analysts warn of a potential surge in gold smuggling as the price arbitrage widens, challenging customs enforcement. The government will closely monitor import figures and the rupee's stability, potentially considering further measures if the CAD doesn't show sustained improvement in the coming quarters.