In the latest Union Budget, Finance Minister, Nirmala Sitaraman, proposed to increase the import duty on gold from 10% to 12.5%. The decision came at a time when the domestic jewellery industry was demanding a cut in import duty. In the past, the Indian commerce ministry had also recommended a reduction in import duty of jewellery. India is one of the largest importers of gold in the world. These imports mainly take care of the demand from the Indian jewellery sector. Total import of gold in 2015-16 had stood at $31.8 billion and it rose to $33.7 billion in 2017-18. It again dipped by 3% to reach $32.8 billion during 2018-19.
Plan behind the policy
Annargha Uuttiya Chowdhury, Director, Anjali Jewellers informed BE, “The government’s endeavour to reduce import of gold in order to stop out flow of foreign currency is understandable. However, the government must realise that the jewellery industry is a self-dependent industry and is in line with the Prime Minister’s ‘Make in India’ vision.”
Chowdhury is of the opinion that if the government wants to support the industry and ensure an increase in domestic utilisation of gold, then it should lower the slab of GST for old gold exchange. He added, “This will encourage clients to utilise the old gold lying idle in their homes and will also help the industry to survive.” The government has also given a huge boost to digital payments by waiving fees for usage of digital payments. In the same manner, if a lower GST is proposed for old gold exchange, then it will encourage people to use their unutilised gold.
Impact and reactions
Industry insiders widely describe the tax hike in the budget as disappointing, explaining that the sector has struggled to recover from the impact of demonetisation followed by the introduction of GST in the following year. There had been widespread expectations in the sector that the import tax would be reduced to bring some relief.
N. Anantha Padmanaban, Chairman, All India Gem and Jewellery Domestic Council told PTI that the increase in customs duty and GST will hike the prices by 15.5% which will benefit the grey market. He said, “Smuggling is already on the rise and this move will further boost the grey market, which will provide 4-5% discount, making it attractive for consumers. We expect the grey market will increase by 30%.”
Regarding the grey market business, Chowdhury told BE,“I don’t think any organised player will venture into unethical practices because everyone would want to utilise the benefits of GST. However, I cannot comment on unorganised players.”
Several companies have started online platforms for facilitating jewellery sale. When asked about this issue, Chowdhury said, “The online segment is a different market where people generally buy light weight jewellery. Therefore it won’t be too affected by this policy shift.”
Yogesh Bansode, President, BVC Brinks, a company that specialises in transport of high value goods stated, “Due to increase in import duty, the demand for gold has reduced. As a result, the shipments which are coming to India has reduced by almost by 50%.”
The duty hike on gold has severely impacted middle class families. Asish Ray, a retired Pfizer executive who is supposed to get his daughter married, shared his experience with BE. He said, “Jewellery is an important part of our weddings. Due to this increase in import duty, the price of gold jewellery has suddenly increased. Now, 10 gm of gold jewellery costs ap-proximately Rs. 3000. This will surely increase my budget.”