Expressing disappointment over hike in the import duty on gold, jewellers and industry body on Friday demanded the government to rollback its decision as it will encourage smuggling and make the yellow metal more expensive. Finance Minister Nirmala Sitharaman in the Budget 2019-20 proposed to increase custom duty on gold and other precious metals from 10 per cent to 12.5 per cent.
All India Gem And Jewellery Domestic Council (GJC) said it is "disappointing and unfortunate" and gold will become more expensive in the country. The government should rollback it immediately.
"The increase in customs duty for gold coupled with GST will make gold more expensive and encourage smuggling. This is not in tune with Make in India principles," GJC Chairman Anantha Padmanaban said in a statement.
Genuine and law-abiding businessmen will get affected. GJC had suggested to make the Gold Monetization Scheme (GMS) more effective and benefit the government and citizens at large but there is no mention of the same, he said.
"The sharp hike and volatility in gold prices will further compound problems of jewellers," Padmanaban added.Indian Gold Policy Centre IIM-A Chairperson Arvind Sahay said, "It will lead to an increase in smuggling.
The increase in smuggling will, to some extent, be mitigated by the new TDS of 2 per cent on cash withdrawals of more than 1 crore". "Overall, so far as gold is concerned nothing much really that will change things one way or the other on a materially large scale," he said.
Khanna Gems Founder and Managing Director Pankaj Khanna said the industry was expecting the import duty on gold to be reduced but on the contrary it has been increased.
"This will have a damping effect on the entire Gems and Jewellery industry. The jewellery sales to tourists will also suffer because of high-cost," he said.
Echoing views, Malabar Gold and Diamonds Chairman Ahammed MP said the hike in gold import duty will be a "double whammy" for the gold retail industry, a segment which is critical for creating the much needed jobs for the economy.
"Considering the critical role of gold industry in supporting economic growth and job creation as well as exports, the Government may reconsider this move," he said.
It is the industry's long pending demand that the government should lower the import duty on gold to 5 per cent level to make illegal trade in gold unattractive, he added.
ABans Group of Companies Chairman Abhishek Bansal said the hike in import duty may lead to drop in gold demand in India further as gold prices are already at multi-year highs and jewellery will become unaffordable to small pocket households.
Import duty hike on gold from 10 per cent to 12.5 per cent will negatively impact India's gold industry. It will impede efforts to make gold as an asset class particularly when gold prices are already rising globally, World Gold Council Managing Director, India, Somasundaram PR said.
In addition, he said, the grey market will thrive which will dilute efforts to reduce cash transactions. Gems and Jewellery Export Promotion Council vice chairman Colin Shah said the Budget 2019-20 is very disappointing for the industry.
"This move will harm the exports of gold jewellery, increase the cost of doing business and smuggling will grow," he added.
IBJA Director and PNG Jewellers CMD Saurabh Gadgil said, the hike in customs duty will have a dampening effect on the market. "However, the push for digitalisation and the shift to a cashless economy will strengthen the organised players in the industry, creating transparency and positive impact market sentiment. The introduction of zero tax liability for those in the Rs 5 lakh income will also align with our expansion in tier II-III markets, and augurs well for the industry as a whole," he added.
Kalyan Jewellers Chairman and Managing Director TS Kalyanaraman said the increase in customs duty on gold import is likely to affect short term sentiments on buying, and lead to an increase in the illegal supply of gold in the market.
However, the inter changeability of Aadhar and PAN card will help consumers tremendously when it comes to purchasing luxury items like jewellery, he added.
Geojit Financial Services head - commodity research, Hareesh V said, the custom duty hike on gold will certainly lift gold prices in the country.
"Since the domestic prices are already at multi-year highs due to a weak rupee and higher international prices, the new decision would cause an additional burden on buyers. The hike in customs duty and the 3 per cent GST will present a total tax incidence on gold at about 15.5 per cent - this will lead to higher prices for gold in the country," he added.
Muthoot Exim CEO Keyur Shah said hike in customs duty on gold might not help curb ongoing illegal entry of gold into the country. It may nevertheless, help shore up government revenues required for infrastructure and social sector spends.
"The Indian consumer will perhaps consider it as an normal increase in gold prices as it usually happens over a period of time that in turn it may strengthen consumer belief that gold always appreciates and acquisition of gold as an asset may increase. It may eventually be good for gold loan NBFCs," he added.