Budget 2020: Gold jewellers call for reduction in import duty

In the run-up to the Union Budget speech on February 1, 2020, Indian micro, small, and medium enterprises (MSMEs) in the gold jewellery segment are feeling the impact of the decline in jewellery sales.

The country saw demand for gold falter in the second half of 2019. Some factors for the decline include a rise in international prices (India imports most of its gold), hike in import duty from 10 percent to 12.5 percent, and liquidity crunch in the Indian economy.

And, the Union Budget 2020 could go a long way in alleviating some of these concerns if it focusses on lowering import duty on gold. 

“There has been a steep decline in jewellery sales over 12 months, and jewellers are facing adverse impacts of the slowdown because of the increase in gold prices, and a slowing of the overall economy. I am expecting that the Union Budget 2020 will provide for a reduction in the import duty on gold because there is an immediate need for a cut in customs duty,” says Shreyansh Kapoor, Vice President, Kashi Jewellers, a Kanpur-based jewellery company.

2019 was also a difficult year for real estate and stock markets, and some jewellers believe this could see gold jewellery, in particular, emerge as a favourable investment option in 2020.

“The current market scenario shows that equity markets and real estate are not able to garner the returns expected. This will give momentum to the jewellery sector. Consumers are now looking at jewellery as an investment option,” says Gautam Singhvi, Co-founder and Managing Director of The Diamond Factory, a Mumbai-based jewellery brand.

The brand’s Co-founder, Prasanna Shetty, has expectations similar to Shreyansh. He believes the Union Budget 2020 should provide for a reduction in customs duty on gold, resulting in increased demand, especially when coupled with relief on personal income tax. 

“This double whammy is poised to ensure that spending, not only in the jewellery sector but also, in the consumer durables space picks up pace. At present, gold attracts an import duty of 12.5 percent and a GST of three percent,” he says.

Some jewellers, including Prasanna, say it is important to include unorganised players in the tax gamut. “Unorganised players are evading taxes while organised players are doing their jobs dutifully even when taxes are increased. This adversely affects business since there is a major difference in pricing, plus the bane is transferred to the end consumer,” Prasanna adds.

Market scenario and the future

The gold and jewellery market was unsure what to expect as the government tinkered with GST slabs. The GST rates were revised on multiple items, including semi-precious stones (both cut and polished). It was reduced from three percent to 0.25 percent.

However, customs duty on cut and polished coloured gemstones was increased from five percent to 7.45 percent.

“This increase in customs duty for cut and polished coloured gemstone is the biggest hit. Additionally, the increase in import duty on gold has had a cascading effect and made the grey market stronger. With these duties, it becomes difficult to compete in the world market and export, as China is a major competitor,” says Milind Mathur, Creative Director and Partner, Kohinoor Jewellers Agra.

Milind is hoping that this year’s Budget will provide for a reduction in duty on imports of cut and polished diamonds.

The gold and jewellery industry is going through one of its toughest phases. However, gold jewellery exports grew 21 percent from November 2018 to November 2019, according to the Gem & Jewellery Export Promotion Council (GJEPC) data.

Jewellers hope for the volatile market to settle down. “I am expecting the Union Budget 2020 to come up with good policies to bring stability and better phases in the jewellery industry. I also feel the immediate requirement to cut down custom duty and import duty charges,” says Rohan Sharma, Managing Director of RK Jewellers South Extension.

Despite what the Budget may hold for the segment, volume growth for jewellers is expected to increase on the back of reintroduction of low-cost gold metal loans and likely stabilisation of gold prices at lower levels. Further, the Bureau of Indian Standards (BIS) revised the standard on gold hallmarking in India from January 2018.

(Edited by Suman Singh)

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