Tax and regulatory restrictions impact exports of jewellery

Gold Watch Jewel TrendzThe import duty and RBI’s 80:20 rule has negatively impacted India’s jewellery exports. Due to which premiere trading houses are suffering losses on export of gold coins and medallions.

There is no doubt on how tax and regulatory restrictions have had adverse effect on exports of jewellery and other finished products, leaving thousands jobless in the gems and jewellery sector. Recently, the Reserve Bank of India (RBI) erased gold import norms by allowing selective trading houses, in addition to already permitted banks, to procure the precious metal to boost exports.

The decision of RBI has somehow helped ease supplies but it’s not enough to rebound the exports of finished gold products unless Government lifts all restrictions including the 10% customs duty, according to jewellers. Due to tax and regulatory restrictions the raw material price spiked and dented India’s competitiveness in exports of jewellery, bars, coins and medallions. Last year, RBI had mandated that at least one-fifth of imported gold must be kept aside for re-exports, and no fresh tranche of imports by an agency would be allowed until 20% of the previous imported volume is exported after value addition, causing premiums to rise by up to 12% of the price overseas.

Though these measures failed to contain the domestic jewellery demand, the ban affected the imports and jewellery manufacturing sector to a large extent. Exports of gold fell by 39.6% in the last fiscal to $11.04 billion from a year earlier, defeating the very purpose of imposing the 80:20 rule. Even in the first two months of this fiscal, gold product exports remained flat at $1.59 billion, against $1.56 billion a year ago and much lower than the 8.9% growth in overall exports.

Premier trading houses are suffering losses on export of gold coins and medallions because of the requirement to supply gold to the domestic market under the 80:20 rule. Under the 20:80 scheme an importer has to ensure that at least one fifth, or 20 per cent, of every lot of imported gold is exclusively made available for the purpose of exports and the balance for domestic use. Export of gold medallion and coins has stopped in May 2013 as Government suspended import of gold by special economic zones for trading purposes. Recently the government revoked the ban but increased the value addition requirement to 1.5 per cent from 0.25 per cent earlier.

In June, premier trading houses were allowed to import gold under the 80:20 rule, which lifted export of medallions and coins. As per rule, for every consignment of gold import, 20 per cent should be re-exported after value addition so that the remaining 80 per cent can be supplied to the domestic market. In June, the country exported `1,399 crore of medallions and coins.

Industry sources said on the condition of anonymity that exporters incurred losses on most shipments. Export of US $100 worth medallions will be invoiced for $101.5 in the books, whereas the realisation could be even lesser at $99.5. This happened mainly in markets like Dubai, which allow duty-free import of gold. But the loss incurred was covered from the supplies made to the domestic market. Industry insiders do not expect such exports to return to 2012 level. Before the government ban in May, export of medallions and coins used to account for 30 per cent of gold exports. After the value addition limit was raised to 1.5 per cent, it is no longer viable to take exports to that level.