Gold And Jewellery Industry Disappointed At Budget Specifics
Not only was no relief forthcoming on either front, but an additional burden in the form of a 1 per cent excise duty on domestic jewellery manufacturers was announced
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The Budget has not lived up to the expectations of the gem and jewellery industry, which has criticised the new excise duty and expressed concern that many of its other suggestions find no mention in the policy pronouncements made by the Finance Minister.
Even as markets and analysts debated the pros and cons of the Modi government's third Annual Budget on Monday, there was a near unanimous sense of disappointment among the gems and jewellery industry at the sector-specific announcements on some counts, and the lack of them on others.
Over the last few weeks, a reduction in the Customs duty on gold which stood at a high of 10%, was one of the key suggestions made by bodies representing the domestic segment. They were hopeful of some relief on this score given the easing of pressure on CAD front, and the launch of schemes for Gold Monetisation and Sovereign Bonds.
Similarly, the export industry had focused much attention on the need to implement a Presumptive Taxation system for the diamond industry. They said this would increase its global competitiveness and even attract capital into the country.
Not only was no relief forthcoming on either front, but an additional burden in the form of a 1% excise duty on domestic jewellery manufacturers was announced.
Industry associations, while noting that the Budget had many positive overall features which would boost consumer demand and accelerate economic growth, clearly felt let down by this.
Among the domestic bodies, Chairman of the All India Gems & Jewellery Trade Federation (GJF), G V Sreedhar said that the association's hopes had been belied by the imposition of excise and spokesperson of the Indian Bullion and Jewellers' Association (IBJA) Prithviraj Kothari said that the fraternity was extremely upset.
On the export front, Chairman of The Gem & Jewellery Export Promotion Council (GJEPC) Praveenshankar Pandya said that existing concerns had not been addressed and added that it was distressing to find in the case of the gems & jewellery sector, no specific attention was paid to address ease of doing business.
Across the board, jewellers have echoed similar sentiments, pointing out that as the industry generates massive employment and makes a significant contribution on the export front, the government itself had recently included it as one of the thrust sectors for the Make in India project.
Now, they say, the new excise duty will work in the opposite direction. Nearly 80% of jewellery is manufactured by SMEs, many of whom are in the unorganised sector. The fear is that there will either be an overall loss of employment due to closures, or the rise of modern, organised production will be retarded by encouraging irregular business practices.
Somasundaram PR, Managing Director of World Gold Council described the new cess as being inconsistent with the move towards better governance and ease of doing business. "This duty will make jewellery buying more expensive and add a significant compliance burden onto an industry already weighed down by a huge burden of customs duty and VAT," he points out.
Additionally, he said that in India, gold is "essentially a savings instrument and savings should not be taxed, they should be tapped."
The focus on the 1% excise and the absence of any export-related incentives has overshadowed a few other smaller, though significant positive measures.
The Budget has taken a big policy stride forward with its decision to create a Separate HS Codes for Lab grown diamonds and Natural Diamonds. This will encourage the development of well defined verticals for both and curb the unhealthy practice of mixing.
The FM has also formalised an earlier government notification that display of uncut and unassorted diamonds in a Special Notified Zone by foreign mining companies will attract taxes. GJEPC has however urged the government to go a step further and "permit the sale of rough diamonds at the SNZ by implementing 0.25% tax on sales turnover achieved".
These policy measures will be given some final shape over the next few weeks as the Finance Bill is debated inside and outside Parliament. The industry will be lobbying for changes, with some associations even contemplating protests and strikes against the new excise levy. On two earlier occasions, governments have had to withdraw a similar excise cess.
Will history be repeated?