Budget 2024: Gold, gems and jewellery sector seeks incentives to be a global hub

India's gold, gems and jewellery sector expects more sops, infrastructure boosts and policy incentives in the upcoming Union Budget 2024-25 to make India a global leader in this business.

The gold and jewellery industry, which contributes 1.3% to the Indian GDP and employs 2-3 million people, expects continuation of pro-growth and pro-gold policy reforms, including further ease of doing business to aid the industry's reform and organised growth, say industry leaders.

Against the backdrop of high prices of gold, the industry demands the Government to reduce duties to curb the illicit import of gold into the country. At present total taxes on gold are over 18% (including 15% of import duty) and such high taxes act as incentives for getting gold into the country from illicit routes, impacting tax-compliant industry stakeholders. Hence, the industry demands a significant reduction of import duty on gold from current highs of 15%, which was not considered in the past few Union Budgets.

Another demand is to provide more incentives for digital gold. Industry estimates suggest that over 120 million customers have bought digital gold so far, with approximately 40 million customers currently holding digital gold.

''There is a need to facilitate orderly growth of the digital gold market to protect and promote micro savings in gold through transparent digital gold channels and to deter any unscrupulous fly-by-night operators from misusing the emerging opportunity,'' says Sachin Jain, Regional CEO, India, World Gold Council. It is also necessary to enable people to get used to gold savings in digital form safely and securely and the first step is large-scale monetisation of gold and making gold savings productive. The government should consider bringing out appropriate guidelines and regulatory oversight that would introduce checks and balances to ensure customers of digital gold are protected with a transparent mechanism to buy and hold gold digitally, he says.

The gem and jewellery sector expects the budget to focus on incentives to make India a global trading hub for diamond and coloured gemstones. The sector contributes around 10% to India’s total merchandise exports. However, the industry is currently facing challenges due to the geopolitical scenario, changes in foreign trade policies and issues related to rough diamond sourcing.

''The Union Budget should introduce a Safe Harbour rule in Special Notified Zones (SNZs), introduce the Diamond Imprest License, and reduce the import duty on gold, silver, and platinum bars to 4% and introduce duty drawback on exports of platinum jewellery to take advantage of the Comprehensive Economic Partnership Agreement (CEPA) between India and the United Arab Emirates (UAE) signed on 27 March 2022'', says Vipul Shah, Chairman, Gems and Jewellery Export Promotion Council (GJEPC).

He says that there has been a long pending demand to allow the sale of rough diamonds in SNZs through the Safe Harbour Rule and to expand the ambit of entities entitled to operate in such zones. Currently, only diamond viewing sessions are held by mining countries at SNZs. The prime objective of SNZ is to have easy availability of rough diamonds by creating efficiencies in the procurement of rough diamonds by allowing overseas diamond mining companies to sell their produce directly to Indian manufacturers through such SNZs. Though sale is allowed in countries like Belgium and Dubai, there is no direct tax on the sale of displayed rough diamonds in Dubai and there is only a 0.187% turnover tax on sale in Belgium. Indian bidders cannot purchase rough diamonds from SNZ.

GJEPC also suggests the Government allow operations by rough diamond broking and trading companies at the SNZs. Globally recognised diamond broking-trading houses such as Bonas and I Hennig have a presence in diamond hubs such as Dubai and Antwerp. Such trading houses are the focal point for the sale of diamonds by smaller miners which cumulatively comprise close to 35% of the global mining produce. Allowing such trading houses to operate from SNZs with similar facilitation as provided to the diamond mining companies would ensure that India has more flexible, timely and cost-efficient access to such diamonds mined by smaller miners, says Vipul Shah. Another suggestion is to establish an SNZ for rough gemstones in Jaipur to solve raw material availability. At present, SNZ is operational in Mumbai and Surat.

Another key issue the sector wants to resolve is related to the abolition of Basic Customs Duty on imported cut diamonds and the introduction of a 'Diamond Imprest Licence'. Under the beneficiation scheme, some mining countries do not allow the export of raw/rough diamonds without some value addition (cutting). These diamonds, when imported in India are not considered rough diamonds, but treated as cut & polished diamonds. That attracts a Basis Customs Duty (BCD) of 5%, which makes India less competitive in the global markets. This makes the export of polished diamonds from India less competitive as compared to competing countries like China, Vietnam and Sri Lanka. Due to beneficiation, the business is shifting to mining countries like South Africa, Namibia, Tanzania etc, says Vipul Shah.

GJEPC thinks that the Government should provide a level playing field for Indian MSME diamond exporters with that of their larger peers with the re-introduction of a Diamond Imprest Licence. GJEPC says that Indian diamond exporters above a certain export turnover threshold should be allowed to import at least 5% of the average export turnover of the preceding three years. This will provide a level playing field for Indian MSME diamond exporters with that of their larger peers and will stop the flight of investment of Indian diamantaires to diamond mining destinations.