Budget 2023: Industry seeks customs duty cut on gold

The Indian jewellery segment hopes that Finance Minister Nirmala Sitaraman will reduce customs duty on gold in the upcoming Union Budget 2023-24, at a time when gold prices are going up to record levels denting retail sales during the peak festive season.

Currently, basic customs duty on gold is about 12.5% and an additional 2.5% has to be given as agricultural infrastructure cess. In the last budget, the duty was raised to reduce the current account deficit. The result was a steep reduction in imports of gold from 1,068 tonnes in 2021 to 706 tonnes in 2022. The duty hike also resulted in increased smuggling of gold into India, an estimated 200 tonnes a year, and that is actually driving the gold retail sales, say industry sources.

The Gem & Jewellery Export Promotion Council's (GJEPC) demand is to reduce import duty to 4% on gold, silver and platinum.

The organised retailers had about 36% growth in the last fiscal, after loss of business during Covid-19, when shops were shut in most parts of the country. The organised sector accounts for almost a third of the market, with the highly fragmented unorganised sector bringing up the rest. Most of the smuggled gold is made as jewellery and are sold through the unorganised sector, say organised retailers.

India led the global recovery in gold sales with 17% year-on-year growth with a demand of 146 tonnes in the third quarter of 2022, the strongest growth since 2018, the World Gold Council said recently while analysing the Q3 global sales in 2022. A recent Crisil Ratings study of 76 gold jewellery retailers, which account for 33% of the ₹3.5 lakh crore annual revenue of the organised sector, says retail sales volume will increase 16-18% on-year to 670-700 tonne this fiscal, crossing the pre-pandemic level of 600 tonnes, supported largely by wedding and festival demand which accounts for 80-85% of gold jewellery sales.

But retailers say customers are postponing sales due to high prices. From a retailer sales point of view, at present apart from the 12.5% customs duty and 2.5% cess, 3% is GST and another 5% goes as making charges. From a customer point of view, as per today's price of ₹42,160 for an 8 grams sovereign gold, the customer will have to pay a final price of nearly ₹46,000. These high prices are causing many customers to postpone purchases and many are now trying to sell gold. Weakening dollar in the global markets, inflation, fears of a recession and central banks increasing gold holding and big investors turning to gold as a safe haven of investment during uncertain times are pushing up gold prices.

"Reduction in import duty on gold, silver and platinum to 4% is a prime recommendation in our wishlist to the Government of India. GJEPC believes that this import duty is draining off the capital from the exporters and is the generator of economic malpractices of all kinds," according to Vipul Shah, chairman, Gem & Jewellery Export Promotion Council (GJEPC). Reduction in import duty will help to have a healthy and transparent industry, besides helping to reduce the blockage of working capital of exporters, says GJEPC.

"As we look forward to the Fiscal Budget 2023, we have a huge opportunity to unlock the true potential of India's jewellery sector and develop it to become a global leader and trade centre. We believe, with the right policies and support from the Government of India, we can further encourage the industry to become more organised," says Ramesh Kalyanaraman, executive director, Kalyan Jewellers.

The exporters also demand allowing sale of rough diamonds in Special Notified Zones, Repair Policy for Jewellery to tap $ 5.75 billion global opportunity, abolition of Import duty on Lab Grown Diamond (LGD) seeds etc.