bullwatchfeb15

Budget 2015-16 dishearten Gems and Jewellery Sector

The Budget 2015-16 focuses on the growth of the country, but ignores gems and jewellery sector. The industry had sought reduction in customs duty on gold to 2 per cent, from 10 per cent now. Government declines curb on gold import duty and introduces gold monestisation schemes and Indian gold coins.

Budget 2015-16 announced by Finance Minister Arun Jaitley on February 28 disappointed the gems and jewellery industry as it failed to address the long pending demand of the gems and jewellery industry. During budget Finance Minister said that India is one of the largest consumers of gold in the world and imports as much as 800-1000 tonnes of gold each year. There were no gold import duty relief, but gold monetisation scheme and proposal of mint gold coins was announced in the budget. Highlights of the budget are as follows:

No gold import duty relief

In 2013, to control the Current Account Deficit (CAD), the Government had raised the gold import duty from 2 to 10 per cent. With the decline in gold imports and CAD under control, the gems and jewellery sector sought reduction in import duty up to 4 per cent in Budget 2015-16, a move that can help boost exports and manufacturing of gems and jewellery. However, the Budget had nothing for gold imports. Vipul Shah, Gems and Jewellery Export Promotion Council (GJEPC) Chairman said, “Budget expectation of the industry has been extremely high, however our only reaction now is disappointment! The FM has completely overlooked one of the most significant areas to curb black money and a long pending demand from the industry to reduce the gold import duty.”

Saurabh Gadgil, Managing Director of PN Gadgil Jewellers Pvt Ltd said, “No cut in Gold import duty will certainly dent the industry.” Though jewellers have welcomed the monetization schemes introduced in the budget, but are dispirited with no reduction in customs duty. “We were hoping that the government will reduce customs duty as the sentiments are still very low in the market. It was very much needed for the sector,” said Ashish Meghraj, spokesperson, Sarafa Traders Committee to Times of India. He added, “There are still expectations that it will be brought down in the near future as it was not announced in the budget”.

The Gems and Jewellery Federation (GJF) is disappointed as well. In a India Infoline report, Manish Jain, Vice-Chairman of GJF said, “In spite of the request of the Ministry of Commerce, FM has completely ignored important issue of reduction of import duty on gold which has given rise to the 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 in gold.  We urge FM to reduce import duty on gold and silver to 4 per cent.” Government has also ignored the reduction of import duty on macheneries and consumable for the jewellery parks for clustered manufacturing centres with common sharing facility as was discussed in ‘Make in India’ workshop.

The Hindu reported that K. Krishnamoorthy, President of Coimbatore Jewellers’ Associaton was disappointed with no duty cut. He said that the offtake in jewellery retail outlets has slumped during the last three months. The industry’s main demands were reducing import duty to six per cent from the existing 10 per cent and liberalising gold imports. The budget does not address these. The association also said that jewellery manufacturers are not covered under the norms for micro, small and medium-scale enterprises. These units need working capital at low interest rates.

Gold Monetisation Scheme Introduced

The budget has introduced a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold Metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold. FM also proposed to develop an alternative fiscal asset, a Sovereign Gold Bond, as an alternative to purchase gold metal. The bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the bond.

“Gold as a commodity was so far left to the realm of speculation, but following the budget speech today it has turned into a pure investment tool without opting for gold jewellery. The budget has introduced the Gold Monetization Scheme that will enable investors to deploy their gold and earn interest, which was not possible earlier,” said Vimal Patel, Chairman and Managing Director of Suwarnsparsh Gems and Jewellery to Economic Times. Haresh Soni, GJF Chairman 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.”

Revised gold monetization scheme is expected to increase the supply of gold to the jewellery industry and also for investment. Through this scheme, banks can channelize gold held by households to the industry. At the same time, it will not curb demand for gold through steps like higher import duty and other forms. According to experts, the monetisation scheme will reduce the gold import drastically by 30-35 per cent a year. “Over 20,000 tonnes of gold lying untraded with private parties may become available through banks to jewellery manufacturers in the form of metal loans. This will make the flow of stashed gold in the market and reduce our dependency on imports,” a gold trader said to the Times. Rajasthan will be among one of the biggest beneficiaries due to the sheer size of trade. Meanwhile, under the scheme, depositors of gold will also earn interest on their metal account.

Prasad Kapre, CEO, Style Quotient Jewellery Pvt Limited said, “Introduction to gold monetization scheme will help consumers to earn bank interest on jewellery that they currently possess. It becomes productive and gives two forms of returns on investment in the form of bank interest and appreciation of assets over time. This will encourage consumers to buy more jewellery. Further trade will also be able to buy bullion from banks that have such deposits. This will help in reducing the overall dependence on import of gold.” Popley Group Director, Rajiv Popley also said that the monetisation scheme will appreciate gold investments and hence facilitate in encouraging consumers to invest in gold, unlike last year when the gold investments were prohibitive.

Manufacturing Indian gold coins   

In the Budget, FM announced that the Government will also commence work on developing an Indian gold coin, which will carry the Ashoka Chakra on its face. Such an Indian Gold Coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country, the Finance Minister said. The passion for gold jewellery can now be full-filled by opting for the low cost 1-gram gold jewellery without spending too much on making charges for frequent change in designs and using gold coins under the gold monetization scheme as an investment tool, Patel of Suwarnsparsh Gems told the Economic Times.

“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,” said Soni to India Infoline. The introduction of gold coins will ensure that India need not import coins anymore. This will help in recycling of existing gold in India and also help in improving CAD. Gadgil adds, “The government will mint gold coins with Ashoka Chakra to reduce demand for gold coins minted outside India. India is the largest importer of gold in the world. The country is estimated to have over 20,000 tonnes of gold.”

Removal of Wealth Tax

The Budget has proposed the removal of wealth tax. Wealth tax is payable if the value of certain unproductive assets (physical gold, vacant house, luxury cars, art and artefacts, yachts, expensive watches and hard cash) exceeds `30 lakh. It is 1 per cent of the value of these assets exceeding Rs 30 lakh. Outstanding loans taken for these assets are deducted while calculating the tax. The abolishment of wealth tax is welcomed by all the jewellers as it encourages consumers to buy jewellery and show in their book of accounts.

“There was no point in continuing the Wealth Tax as the cost of collection was high,” said Gadgil. This move will help simplify the tax structure and also rationalize and remove the exemptions to eliminate tax disputes and will promote widening of the tax base. GJEPC says that wealth tax evasion will make jewellery industry cleaner and encouraging industry for investing PEs and institutions and 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 and 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 the manufacturing sector will be given a boost.

Introduction of giving the PAN card number of every consumer buying goods above `1 lakh

Presenting the first full-year budget, FM announced that PAN card details is being made mandatory for any purchase or sale exceeding the value of `1 lakh. Jewellers unhappy with the announcement said that with making a PAN card mandatory for any cash purchase above `1 lakh and the likely incentivisation of credit and debit card use above a certain threshold would drive people towards the unofficial channel — i.e, jewellers and dealers who smuggle gold into the country.

Consumers are reluctant to give away their details while making such purchases, hence such move may keep the buyers at the bay from making heavy jewellery purchase. Gadgil said, “PAN must for any sale exceeding Rs. 1 Lakh, our majority of the population still stays in the rural areas. People not having PAN cards will have difficulty in investing in Gold.”