Industry Disappointed with India's Budget

Mumbai: Mailbox of the has been flooded with reactions of trade bodies and industry leaders expressing their ‘unhappiness’ over the latest budgetary proposals made by the Union Finance Minister Mr. Arun Jaitley. Here we produce them under one compiled news item:

Vipul ShahMr. Vipul Shah, Chairman of the Gem & Jewellery Export Promotion Council (GJEPC) says: Our congratulations to the FM on a budget that has done well for all segments with a set of sound initiatives in infrastructure, exemptions and benefits for the individual tax payers and a good start to get the economy moving on the Make in India growth track. While the expectations from the budget have been extremely high from the industry, we believe that it is a bold and clearly defined budget and must be viewed in the current context as a tool to augur growth, streamlining and simplification of taxation structure and attract investments – which the FM has done.

As far as the G&J industry is concerned, our only reaction is disappointment! The FM has completely over-looked one of the most significant areas to curb black money and a long pending demand from the G&J industry to reduce the gold import duty. Smuggling of gold plagues the industry and leads to illegal trading and the duty reduction would have helped us control the issue to a very large extent.

We commend the FM’s effort to identify innovative ways to reduce demand for overseas gold demand and control the CAD, by introducing the gold monetization scheme to and Indian gold coins.

Some of the other critical matters that should have been addressed simplification of the process for direct sourcing of roughs, introduction of Turnover based Income Taxation System and an exclusive and separate duty structure for natural and man-made diamonds.

The All India Gems and Jewellery Trade Federation (GJF), the national trade federation for the promotion and growth of trade in Gems and Jewellery (G&J) Industry across India, has expressed a satisfaction with the measures announced by Finance Minister Mr. Arun Jaitly in his maiden budget.

Haresh SoniMr. Haresh Soni, Chairman, GJF said “GJF welcomes the innovative steps government has announced to reduce demand for overseas gold and control the CAD, by introducing the gold monetising scheme and manufacturing of gold coins with symbol of Ashoka Chakra. Making gold coins in India will reduce the demand for foreign coins. However, GJF is awaiting a detailed plan for this. GJF expects that banks will not sell and encourage the consumers to buy these coins for the investment purpose. If it is done so, the consumption of gold will increase and the current account deficit will widen further “

Mr. Bacchraj Bamalwa, Director, GJF said “GJF’s recommendation for Rashtriya Svarna Nivesh (RSN) Scheme has been accepted by the government. This is a very positive move and will help control the current account deficit and will allow depositors to earn interest. We also welcome the move by the government to abolish wealth tax. This will encourage consumers to buy jewelry and show in their books of accounts”

However, the federation is disappointed as the FM has over looked gems and jewellery sectors long pending demand to reduce the duty on gold and silver.

Mr. Manish Jain, Vice Chairman, GJF said, “In spite of the request from the Ministry of Commerce, FM has completely ignored important issue of reduction of import duty on gold which has given rise to creation of parallel economy through smuggling of gold. The industry has been requesting the Govt. for a long time. Reduction of import duty on gold would have helped to control the issue of illegal trading on gold. We urge FM to reduce import duty on gold and silver to 4%”

“Another area which the Govt. has ignored is the reduction of import duty on machineries and consumables for the jewellery parks for clustered manufacturing centres with common sharing facility as was discussed during ‘Make in India’ workshop. Also, the pan card requirement for sale above 1 lac worth of jewellery will create a huge problem across the country as most of the people in the rural area do not have pan card” Mr. Jain added.

Somasundaram PRMr. Somasundaram PR, Managing Director, India, World Gold Council says, “This budget is exceptional for gold. The policy announcements on gold today are a step towards making gold a part of the larger financial system and a fungible asset class. Recent policy suggestions have cohesively pointed towards the need to go beyond duty cuts and artificial regulatory limitations on demand and instead focus on holistic solutions. Demand for gold cannot be washed away by supply curbs. It is imperative to nurture the savings mindset imbedded in households through gold accumulation, and then use it to enhance savings, putting it to work for the economy. We have been stressing the need for the introduction of a structured and customer friendly gold monetization scheme and the introduction of an India branded gold coin as key policy measures, which will enhance gold’s economic value. This announcement is set to have a healthy impact on India’s gold sector, but this can be realized only if trade is liberalized without artificial curbs through higher duties and other forms. The import duty at 10% continues, but we believe it should be rationalized soon.”

“India will now be able to set in place a measured monetization framework for gold from the existing stocks in private hands worth over USD 1 trillion. The monetization scheme will drive orderly recycling and enhance transparency, benefiting millions of households and the macro economy, as it has the potential to translate gold savings into economic investments. Standard India gold coins will ensure gold availability aligned to customer preferences and will help in curbing the unofficial market.”

“With these announcements, the gold industry is better positioned to fulfil its vision to make a major contribution to the country’s prosperity in the next five years. Overall, India’s gold industry can now embrace a bigger vision of becoming the “jeweller to the world” in line with the Indian Government’s “Make in India” ambitions, whilst at the same time enabling the country’s natural affinity with gold as a savings asset to drive financial inclusion.”

Mehul ChoksiMr. Mehul Choksi, Chairman of the Gem & Jewelry, Luxury & Lifestyle Forum (GJLL) of FICCI (Federation of Indian Chambers of Commerce & Industry) expressed his disappointment over the budget as none of the relief measures that were recommended to give a boost to the jewellery manufacturing sector under the PM’s ‘Make In India’ initiative, were considered by the FM.

The FM has announced a slew of measures to curb black money in India, yet ignoring one of the biggest issues faced due to smuggling of gold to the tune of 180 tons that has come into India through ‘un-official’ channels in 2013. The impact of this ‘un-official’ supply of gold is valued at about US$ 10 billion, leading to a loss in foreign exchange inflow of a similar amount and a loss in revenue of over US$ 1 billion on account of Customs Duty. The 2% import duty on gold levied two years back to control the current account deficit should have ideally been rolled back given the current, positive state of affairs. This did not find any mention in the sectoral or taxation reforms announcements. We are hopeful that the FM will consider this roll-back in near future due to its adverse impact on the overall economy and the industry.

The industry has suffered a loss in sales and exports, as the landed cost of ‘official’ supply of gold has increased to about 20% above the international price resulting in a huge surge in the smuggling of gold. The jewellery exports unlike the exports of many other sectors are done by micro-manufacturers and karigars from across the country. With the current duty levy, the raw material is itself more expensive than the exports of jewellery making it a non-lucrative business model and leading to a dip in the exports.

This could have been avoided if the FM had rolled back the import duty of gold to 2% as CAD has been controlled and fiscal deficit is less than 4.9% as budgeted by the government.

The Indian NRI customer is a significant buyer of jewellery from India and almost 10-15% of jewellery sales during festive season comes from this segment. Due to the increased costs of jewellery, this buying segment has shifted to Dubai from India. Hence, the loss of exports and sales to NRI customers because of existing high import duty will continue to be a concern area due to the tenfold increase in custom duty that is levied on gold imports. In addition, purchase by NRI customers and returning NRI’s, which accounts for 10-15% of the total retail sales had completely evaporated because of the huge difference of over 20% between the gold price in India as compared to Dubai or Singapore.

The gold monetization announcement is a positive initiative by the GOI and we hope that it is implemented well and is investor friendly.

The Indian jewellery manufactures and retailers make a significant contribution of 6 to 7 % towards Indian GDP, creating value addition of Rs 100,000 crores, not to overlook the 14% contribution towards exports, which is only next to textile & apparel sector. The G&J is also one of the top employment generating industries, where 90% of manufacturing is by ‘karigars’ and 80% of retailing by ‘independent’ jewellers.

Rajiv PopleyMr. Rajiv Popley, Director, Popley Group says, “Gold monetization will appreciate gold investments and will thereby facilitate in allowing and encouraging consumers to invest in gold, unlike last year when the gold investments were prohibitive.

This will aid in abolishing black money and laundering in gold. Understanding and taking into consideration the sentiments of Indian consumers the Government is making a clean path of investing in gold. Wealth tax abolishing will also encourage purchase as this was taxed earlier. Consumers will declare the gold purchases made as the wealth possessed by them is not taxed under wealth tax. This will make jewellery industry a cleaner & encouraging industry for investing PEs & institutions & help boost the industry in a positive manner. Jewellers will not be considered black marketers or accrued with money laundering as this is a chain reaction. Consumers don’t declare purchases due to tax evasion & hence the jewellers can’t declare their sales. Buyer’s sentiments will definitely be positive and will also lead to encourage gems and jewellery exports and manufacturing sector will be given a boost. Make in India will grow as a realty as the industry is labour intensive & Indian Jewellery is very highly appreciated internationally also.”