The Union commerce ministry has sought a reduction in the import duty on gold in the coming Union Budget, with a view to pushing manufacturing and export of the gems and jewellery sector, a source said.
In last year’s Budget, the government raised the tariff on gold to 12.5 per cent. Since then, the global price of gold has risen nearly 20 per cent, magnifying the rise in customs duty. These, the gems and jewellery sector has pleaded, are choking the high-jobs generating sector.
Jewellery retailers and exporters have urged the tariff be cut and also the goods and services tax (GST) on jewellery certification.
“In the past 12-18 months, at least 20 per cent of a skilled workforce of an estimated million has migrated to other services, including food delivery chains like Swiggy and public car transportation services like Ola and Uber. Migrated skilled workers, according to them, earn around Rs 45,000 a month, which the jewellery industry cannot match due to a slowdown in domestic sales,” said Anantha Padmanabhan, managing director at Chennai-based NAC Jewellers.
There has been a steep decline in jewellery sales over 12 months, because of both the sharp increase in gold prices and a slowing of the overall economy. At Rs 39,670 for 10g, gold prices in India have risen 25 per cent in a year.
“The scenario is very bad for the domestic industry. Another 5 per cent increase in gold prices from here would finish it,” said Padmanabhan.
- Gold import was attracting 10% duty before July 2019
- It was then increased to 12.5%
- Now, jewellers want it to be reduced to 5%
- After the duty hike, gold price is up nearly 20%
- Jewellers are facing adverse impact of the slowdown
- 20% skilled workers have migrated to other sectors
With falling farm output and rural consumers in stress, that part of the demand is also hit. As a consequence, many small and medium sized retailers have cut their size of operations, says the trade, renting out a part of their showrooms for other business.
“There is an immediate need for a cut in customs duty to five per cent. With the current account deficit situation under control at 1.5 per cent (of gross domestic product) for April-September 2019, we appeal to the government for this.
The import duty on rough diamonds should also be brought down to 2.5 per cent, from the existing 7.5 per cent. And, the GST on diamond certification must be cut to 5 per cent, from 18 per cent,” said Colin Shah, vice-chairman, Gems and Jewellery Export Promotion Council.
Gross export of gems and jewellery declined by 5.3 per cent to $27.7 billion for the first nine months of this financial year, from $29.2 billion for the corresponding period last year.
Gold imports in December declined sharply to 39 tonnes, from 152 tonnes in November.
India’s gold imports, which have a bearing on the current account deficit (CAD), fell about 7 per cent to USD 20.57 billion during April-November period of the ongoing financial year, according to the commerce ministry data.
Imports of the yellow metal stood at USD 22.16 billion in the same period of 2018-19.
The decline in gold imports has helped in narrowing the country’s trade deficit to USD 106.84 billion during the eight-month period under review as against USD 133.74 billion in the year-ago months.
Gold import had been recording a negative growth since July this year. However, it grew about 5 per cent to USD 1.84 billion in October and 6.6 per cent to USD 2.94 billion in November.
India is the largest importer of gold, which mainly caters to the demand of the jewellery industry.
In volume terms, the country imports 800-900 tonne of gold annually.
To mitigate the negative impact of gold imports on trade deficit and CAD, the government increased the import duty on the metal to 12.5 per cent from 10 per cent in this year’s budget.
Industry experts claim that businesses in the sector are shifting their manufacturing bases to neighbouring countries due to this high duty.
Gems and jewellery exports declined about 1.5 per cent to USD 20.5 billion in April-November this fiscal.
The country’s gold imports dipped about 3 per cent in value terms to USD 32.8 billion in 2018-19.
The CAD narrowed to 0.9 per cent of GDP or USD 6.3 billion in July-September, 2019-20 from 2.9 per cent or USD 19 billion in same period last year, according to the RBI data.