Budget 2014 disheartens gems and jewellery industry
If you think it’s only monsoons that has dampen the business of gems and jewellery industry than that is not all. Entire industry was expecting relaxation on stringent norms on gold imports in Budget 2014. However, everyone in the industry was disappointed when finance ministry did not consider their plea of reducing the import duty component on gold and also abolish the stringent 80:20 norms.
Post elections 2014, jewellers were hopeful that ascent of NaMo will bring in cheer back to the industry. Indian gems and jewellery industry was suffering due to policy hurdles introduced by the government in 2013. The 10 per cent export duty; 80:20 rule have hampered the business. With Modi Government coming into power the hopes of the industry had doubled. The jewellery trade dominated by Gujaratis had always favoured the government headed by NaMo.
In Budget 2014, barring one, none of the expectations of the gems and jewellery sector was fulfilled. Haresh Soni, Chairman, GJF said, “The entire industry was waiting for a positive turn of events but was let down by the government in its maiden budget. The union finance minister Shri Arun Jaitley has ignored the plight of the trade in spite of several representation and meetings by the federation with the ministry highlighting the severe hardship faced by the industry due to restrictive policy measures of the government in last financial year.”
Highlights of Budget 2014 for gems and jewellery industry
Finance Minister Arun Jaitley announced the much awaited Budget 2014 on July 10, 2014. Despite of regular meetings with ruling government before budget, the government ignored their plea for a cut in import duty on gold that has been creating havoc in the industry. The difference between domestic gold price and international price is 10-12 per cent high due to 10 per cent import duty.
The measures announced for the sector includes full exemption from basic customs duty is being granted to pre-forms of precious and semi-precious stones, basic customs duty on half-cut or broken diamonds is being increased from nil to 2.5 per cent. There is also a basic customs duty on cut and polished diamonds including lab-grown diamonds and coloured gemstones is being increased from 2 per cent to 2.5 per cent.
Revision in tolerance condition in the case of re-import of cut and polished diamonds after certification/grading from a foreign laboratory/agency wherein a variance not exceeding +- 0.05mm in diameter for round shape diamonds and +-0.07mm in length and breadth for diamonds of other shapes shall be allowed. The allowable variance in weight remains unchanged. The definition of Micro, Small and Medium Enterprises had been reviewed in the budget to provide for a higher capital ceiling.
Budget 2014 has laid provision for Formation of an Export Promotion Mission along with the State by the Central Govt. to improve the infrastructure for exports in all states. It also proposed the launch of a national multi-skill program called Skill India emphasizing on employability and entrepreneur skills in youths. Revival of the Special Economic Zones (SEZs) was presented to make them effective instruments of industrial production, economic growth, export promotion and employment generation.
No relief despite of low CAD
The new government is still uncertain about maintaining the Current Account Deficit (CAD) at lower levels. Thus it has refrained from making any changes in the import duty structure on gold. CAD came down from 0.9 per cent to 0.2 per cent. The industry had been expecting that once the CAD comes down, the government would rethink of the restrictions and duties. But, the budget has not seen any change in import duty, hence there is no respite for traders and the consumers.
The economic survey too had acknowledged that the CAD had a sharp fall with the decline in gold imports. The export-import deficit bridged in by 27.8 per cent from $190.3 billion during 2012-13 to $137.5 billion. “The industry is happy that our recommendation for rationalisation of import duty of broken diamonds and withdrawal of import duty on pre forms of semi-precious and precious stones has been accepted. Also the rationalisation of import duty on processed diamonds to 2.5 per cent will help domestic manufacturing sector,” said Vipul Shah, chairman, Gems and Jewellery Export Promotion Council.
Jewellers plight on Budget 2014
The entire gem and jewellery fraternity is not very happy with the outcome of the budget. The industry is largely disappointed as the import duty on gold has not been reduced even by 2-3 per cent, which will continue to create mayhem in the industry. According to T.S. Kalyanaraman, Chairman & Managing Director of Kalyan Jewellers, budget is a roadmap drawn by the Government. He said, “If the government walks the talk, it will see an improvement in the overall economy, which will mean more spending power to the consumer. This will definitely have positive impact for the Jewellery business. However we are disappointed that there has not been any relief in the import duties.”
Many renowned jewellers feed that budget is industry neutral as none of the demands of the sector has been addressed. Ishu Datwani, founder of Anmol Jewellers says, “Budget 2014 won’t bring the desired change in business of gold industry. But, the FM has taken a lot of fundamental steps to put the economy back on track and improve the ease of doing business in India. This will help strengthen the overall economic environment and business sentiment, thereby benefitting the gems and jewellery sector via increased demand.” Kalyanaraman also feels that the current budget will improve the fiscal position of the country. “The budget is almost industry neutral without any of the sector’s demands like introduction of benign tax at practical rates, decrease of import duty on gold bullion and introduction of procedurals for creation of SEZ for rough diamonds finding any mention in the budget,” said Vipul Shah, GJEPC Chairman.
On a brighter note, rationalizing the import duty of broken diamonds and withdrew the import duty on pre-forms of semiprecious and precious stones is welcomed by the industry. GJEPC has welcomed the Government’s decision to renewed focus on promotion of exports and reviving the SEZs in the country. The increase in customs duty on polished diamonds will benefit only the DTC sight holders and other diamond manufacturers. Also, the exemption on customs duty on their pre forms will be making precious and semi precious stone cheaper. Datwani adds, “With the maiden budget been announced, Mr. Arun Jaitley has increased the customs duty from 2% to 2.5% on the semi precious and half cut diamonds as well as cut and polished coloured gemstones. The duty in diamond affects our competitiveness especially in the solitaire segment.”
Mr. Soni said, “In April-May 2013, there was major buying but this year it is almost flat and no major demand rise is expected.” Domestic gold prices are high by 10-12 per cent as compared to international prices due to which gold smuggling is on rise. Prithviraj Kothari, Vice President, India Bullion & Jewellers’ Association, agreed that the domestic price of gold was high and the difference in price made it very profitable for smugglers. “The 80:20 scheme too is a very cumbersome process and there is a gold shortage. The industry was expecting a cut in import duty to 5-6 per cent levels but that has not happened.”
The biggest threat posed due to high import duty is smuggling. As there have been no reductions in import duty on gold, Kalyanaraman says, “The fear is that this could result in an increase in gold smuggling, which will have an adverse impact on the industry and the overall economy. Short-term curbs on gold were understandable at the time they were introduced, but the condition is getting worse as curbs continue to stay for longer time. Somasundaram P. R., Managing Director-India, World Gold Council says, “Curbs for long time has led to an increase in smuggling. The curbs need to be reviewed and reversed soon. This will liberate the jewellery industry, which employs millions in direct employment, to gear up and modernize and deliver enhanced economic contribution.”
Jewellers still optimistic
Despite of disappointing budget for the gems and jewellery industry, jewellers and traders are still hopeful. They are of the opinion, the budget was not able to provide with instant relief to the plea of jewellers but in long-term it will be of great help. Budget 2014 is prepared to make India economically stable and in whole even gems and jewellery sector will reap the benefits in future.
Kalyanaraman shares, “The tax incentives given to marginal savers has put more money in their hands and this will indirectly benefit us. Also the thrust in improving the overall economic situation will have its benefits. It is our hope that the short-term curbs on gold will be reviewed and reversed soon.” Businesswise the jewellers are positive that by Diwali the demand for jewellery will improve. “I think the industry will perform well in the second half, all the pent-up demand will then find its way! The bridal gold sets and diamonds will be the top sellers in the upcoming festive season sale,” said Gadgil.
Though the industry continues to stay positive, jewellers still expect import duty cut in near future. Datwani says, “We still expect policy reforms and duty cut announcement, but it will be beneficial only if done soon, as the time factor is very crucial.” However, Gadgil don’t see any rate cuts this financial year. He says, “The government seems in no mood to further increase the current account deficit and with the oil prices hovering north wards, this is going to be an area of concern.”
Kalyanaraman urges to take a broader look to deal with the upcoming challenges in near future. He says, “The need of the hour is to stop seeing gold as the problem and instead focus on measures that will unlock the potentially transformative value of gold stored in millions of private hands in order to fund growth.”