Budget, No Respite

The past couple of years were extremely daunting for the gems and jewellery industry. With the Modi Sarkar taking over office, the industry pinned its hope from the new Government. The first of the move that was highly anticipated was the relaxation of import duty on gold and abolishment of the 80:20 rule in the Union Budget, but the expectations were far from met. A report by M.D. Dewani.

The final Union Budget for 2014-15, presented by Finance Minister Arun Jaitley on 10 July 2014 has left the diamond industry and trade as also most segments of gems and jewellery, virtually disappointed as no worthwhile attempt has been made by it, to relieve these export-oriented sectors from the problems they have been facing for sometime now.

Sagging Exports:
The Government could not be unaware that overall exports of all items of gems and jewellery in 2013-14 were down by 12.24 per cent in dollar terms, compared with the preceding year, while shipments of gold jewellery during the period plummeted by 39.50 per cent in dollar terms. Besides, shipments in the first quarter of 2014-15 were also slack. This implied that some special measures were needed to place these exports on even keel. Also representations were made to the government in this regard by these sectors pleading for urgent measures to boost these exports.

Inadequate Measures:
No doubt, the Union Budget announced some measures pertaining to the gems and jewellery business, but the leaders of this sector doubted whether these would be enough to give adequate boost to this sagging sector.

Import Duty on Diamonds:
So far as the diamond sector is concerned, the Union Budget raised the import duty on cut and polished diamonds to 2.5 per cent from 2.00 per cent, but some manufacturers were of the view that there was no need to promote import of cut and polished diamonds into the country by keeping the level of import duty on them at such a low level. However, some circles, which were interested in importing cut and polished diamonds, argued that the import duty on such diamonds would have been kept unchanged. One good step taken by the budget was the imposition of duty on imports of broken diamonds into the country. When the country claimed to be the biggest manufacturer of cut and polished diamonds in the world, no facility given for the import of cut and polished diamonds - whether broken or otherwise could be justified, according to some diamantaires.

Colored Gemstones:
Only single small good step that was taken by the Budget pertained to withdrawal of duty on imports of pre-form precious and semi-precious stones. Actually, if imports of raw materials for the colored stones sector are facilitated, there is scope for promoting exports of these gemstones from the country in view of the changing fashion trend in some overseas markets. This is expected to lead to some increase in demand for colored gemstones.

Gold Jewellery:
If, however, the gems and jewellery industry is most disappointed with the Union Budget it is because of its reluctance to place gold jewellery exports on a healthy footing. Last year, the Union Government stepped up the import duty on gold in order to reduce the current account deficit. No doubt the same was thus reduced, but higher rate of the import duty on gold continues. Besides, the jewellery export trade was to purchase its requirements of gold from certain designated importers who were expected to supply 20 per cent of their gold imports to exporters of gold jewellery.

Representatives of the gold jewellery exporters, did represent to the Government that the import duty on gold should be brought down from 10 per cent to the earlier level of 2 per cent, and the Reserve Bank should be asked to scrap 80:20 rate in regard to imports of gold. Such an arrangement continued to restrict the supply of gold for the promotion of gold jewellery exports from the country. The very fact that after the increase in import duty on gold, exports of gold jewellery from the country fell significantly was quite evident. However the Union Budget failed to remedy this situation and introduce some special scheme for promoting exports of gold jewellery from the country. This no doubt reduced imports of gold into the country for domestic consumption, but simultaneously unintentionally, this encouraged smuggling of gold into the country. In other words, direct imports of gold thus came down, smuggling of gold into the country not only continued but went up, the higher import duty on legal imports of gold, provided indirect incentives to smugglers to step up their illegal activity of bringing more gold into the country surreptitiously as the margin on such illegal activity increased.

Overseas Expectations:
Meanwhile, some of the overseas markets, which are now having summer vacation, are expected to resume their normal business activity by the middle of the next month. The diamond industry and trade expect their overseas enquiries by the latter half of August 2014.

Bullion Discouraged:
The sentiment in the bullion market continued to be affected by the current uncertain international political situation. In the overseas markets, gold was quoted around US$ 1304.34 per ounce and silver at US$ 20.60 per ounce on 17 July 2014. In the domestic market, standard gold was quoted around Rs. 27,935 for 10 grammes, while silver was traded around Rs. 45,350 per kg. The bullion trade was expecting that import duty on gold might be brought down to a reasonable level, as the unduly high import duty on it encouraged smuggling and pulled down exports of gold jewellery from the country. However the Union Government has remained adamant not to bring down import duty on gold, even for promoting exports of gold jewellery from the country!