Wedding buyers in Kerala are among the hardest hit. With gold prices soaring, families are being forced to rethink budgets, scale down purchases, or shift to lighter jewellery. Photo: iStock
Kerala gold markets reel under Modi's year-long ban call
A record ₹1,275 per gram price surge and steep import duty hike have pushed Kerala’s gold market into chaos, fuelling smuggling fears, hitting wedding budgets
Demand has surged across Kerala’s gold markets in the wake of Narendra Modi’s “nation first” call urging citizens to avoid buying gold for a year, setting off a chain reaction that has exposed deeper fault lines in the economy, policy, and the cultural centrality of gold, according to the gold merchants.
What was meant as a measure to curb foreign exchange outflow has instead triggered a wave of anxious buying. Consumers, wary of further price hikes and policy shocks, have rushed to jewellery stores, even as prices climbed to historic highs following the Centre’s decision to sharply raise import duty on gold.
Prices shoot up
The duty hike from 6 per cent to 15 per cent has had an immediate and dramatic impact. Gold prices in Kerala surged by ₹1,275 per gram, pushing the price of a sovereign to ₹1.23 lakh. Traders say such a steep single day increase has never been recorded before.
According to traders, this is the first time in the history of gold trade that we are seeing such a sharp increase, ₹1,275 per gram. At the same time, the Prime Minister has asked people to stay away from buying gold for a year. Soon after, import duty was raised to 15 per cent. When you read all of this together, it is clear the sector is heading toward a serious crisis.
Trade bodies have responded with unusual unanimity, warning that the combination of policy signals and price shocks could destabilise the industry.
Encouraging smuggling
The Kerala Gold and Silver Merchants Association, or KGSMA, has cautioned that raising import duty may end up defeating its own purpose. “If import duty is increased to 15 per cent, it will naturally encourage gold smuggling networks,” the association said, flagging the risk of a growing parallel economy.
Backing this concern with data, KGSMA pointed out that when import duty was earlier at 15 per cent, India imported nearly 1,000 tonnes of gold. When duty was reduced to 6 per cent, imports dropped to below 800 tonnes. “The assumption that higher duty will automatically reduce imports does not hold true in practice,” the association noted.
Instead, traders argue, the widened price gap is creating lucrative incentives for illegal trade.
“If one kilogram of gold is smuggled into the country now, the profit can exceed ₹20 lakh,” said KGSMA state general secretary advocate Abdul Nasser. His view is echoed by the association's president K Surendran, and treasurer Krishnadas CV.
“If that gold enters the parallel market and avoids the additional 3 pe rcent GST, profits could go up to around ₹24 lakh.”
Such margins, they warn, will inevitably strengthen smuggling syndicates while hurting legitimate businesses that operate within the formal economy.
Not practical
At the same time, the All Kerala Gold and Silver Merchants Association, or AKGSMA, has taken direct aim at the Prime Minister’s call to halt gold purchases for a year.
“We welcome the concern about protecting foreign exchange reserves,” AKGSMA said. “But asking people to completely stop buying gold for a year is not practical.”
The association stressed that gold is not merely a discretionary purchase but a core financial instrument for ordinary households. “Gold is the primary investment of common people,” AKGSMA said in a statement. “It should not be seen just as jewellery, but as a dependable asset.”
The statement reflects a long-standing reality in Kerala, where gold plays a dual role, both cultural and economic. It is integral to weddings and social customs, but also functions as a safety net in times of distress.
“In times of crisis, illness, accidents, or children’s education, ordinary families rely on gold,” AKGSMA pointed out. “It is their most accessible and trusted form of financial security.”
The association also warned that global conditions may continue to push prices higher, making the call to abstain even more impractical. “Given global economic uncertainty and conflict situations in West Asia, there is every likelihood that gold prices will rise further,” it said.
That assessment is shared by traders, who say geopolitical tensions and volatility in crude oil markets are already influencing price trends. While there had been a brief phase of easing when crude prices surged during the early stages of tensions involving Iran and the United States, the domestic duty hike has sharply reversed that trend.
For consumers, the impact is immediate and tangible.
Wedding buyers hit
Wedding buyers are among the hardest hit. With gold prices soaring, families are being forced to rethink budgets, scale down purchases, or shift to lighter jewellery. “People cannot simply avoid buying gold for weddings. What they are doing instead is reducing the quantity or choosing lightweight options”, Manuel Immatty, a local gold merchant from Thrissur tells The Federal.
This shift, traders like him say, is accelerating an existing trend. Younger consumers are already moving away from heavy, traditional ornaments toward minimalist designs. Rising prices are likely to deepen that transition.
“Demand for gold will not disappear,” Manuel explained. “People do not see gold just as jewellery. It is a liquid asset, something that can be converted into cash at any time. That attraction will never go away. But the way people buy gold is changing.”
Reduce fuel
Even as they oppose the current policy approach, trade bodies have suggested alternatives. AKGSMA said the government could focus on reducing fuel consumption, particularly petrol and diesel, as a more effective way to curb foreign exchange outflow.
“Targeting gold alone will not solve the problem,” the association said. “There are other areas where import dependence is significant.”
The response from the ground suggests that the relationship between policy and consumer behaviour is far from straightforward.
Instead of reducing demand, the Prime Minister’s appeal appears to have triggered a sense of urgency among buyers. Instead of stabilising the market, the duty hike has intensified volatility. And instead of weakening gold’s appeal, the current uncertainty has reinforced its status as a safe haven asset.
“Gold is also a measure of a nation’s economic strength,” AKGSMA noted, underscoring its broader significance beyond individual consumption.
Gold industry worried
For traders, the coming months will be critical. If high prices persist and policy signals remain restrictive, the industry could face a prolonged slowdown. Smaller players, in particular, may struggle to stay afloat amid declining margins and shifting consumer behaviour.
For now, Kerala’s gold markets remain active, but uneasy. Showrooms are busy, but the mood is cautious. Buyers are purchasing, but with hesitation. Traders are selling, but with concern.
Caught between policy, price, and tradition, the gold economy is navigating one of its most complex moments, where every signal seems to be pulling in a different direction, and where the future remains deeply uncertain.
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