The principles of economics say that to reduce demand for any product, there can be quantitative or price actions. If there are restrictions on how much can be bought, demand will come down. Alternatively, the price can be increased to the extent that people buy less. Now, quantitative restrictions are difficult to administer in a large country and invariably lead to the creation of a black market. Therefore, price changes are preferred. Following the Prime Minister’s advice to consume less gold and petroleum products, the government has opted for price changes for both.

The duty on all precious metals has been increased from 6 per cent to 15 per cent. This makes gold and silver, which are big-ticket import items, more expensive. The idea is to make it more costly for consumers to buy. Now, there are basically three categories of consumers here.

The first is the affluent class, which is agnostic to price changes and will buy gold even if the price goes up.

The second is the non-affluent class, which is more price sensitive. In fact, the absolute quantity of gold imports has come down over the years from 795 tons in 2023-24 to 721 tons........

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