Pre Budget Views & Suggestions

The most discussed topic this month is “THE UNION BUDGET” & how will it affect our commodity business.

Being a MD of RSBL and President of BBA, everyone has been asking about Pre budget expectations and suggestions. On my behalf, I would like to put forward following points:

1.        Import Duty:

Government had increased import duty on Gold and Silver before the budget. A two per cent customs duty on the value of gold imports will replace the flat Rs.300 per 10 grams that was being levied on the yellow metal earlier. Similarly, in the case of silver a six per cent customs duty on the value of the imports will be charged instead of the Rs.1,500 per kilogram that was being levied until now. The duty price is variable as per the delivery of the consignment. Due to this, the increase in duty on the actual price of gold is being passed on to the retail consumers by the jewellers. I expect that this budget will address this issue and a fix duty structure will be levied. The extra revenue generated from the increased duty should be used by the government for creating new hallmarking centers, Research & development in mining sector.

a.      Hallmarking is a great move by the government. It will ensure customer satisfaction by purity assurance. For this, the current need is to increase the hall marking centers at a faster pace so that the implementation is done in no time.

b.      Research & development is the key to the future of Indian bullion industry. India is rich in mines but the R&D is so poor that we are hardly in position to extract much of its abundant resources. To be precise the country produced and refined only a minuscule 2.46 tonne worth Rs312 crore in 2008-09, the latest period for which data are available. That’s less than 1% of the value of metallic mineral production in the country. On the other hand, China boosted its gold refining business after it gave companies a single-window clearance along with fiscal and infrastructure incentives, he said. Today, the country produces and refines about 320 tonne(approx.) of gold annually, the most in the world. I feel that if R&D is carried in an efficient way, production of the metal will increase. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.

2.        Clarity:

 Excise duty of 1% has been levied on branded Gold/Silver coins and small bars. I expect that there will be clarity on the definition of “branded goods”. Excise duty increase will hit the common man who is the biggest investor in these types of products. The products will be more expensive and in turn reduce his/her savings.

3.        Options:

 Commodity exchange have now completed almost 8 years in India. Introduction of Option product for this exchange is must. Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also be highly benefitted from this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date.

4.        STT Tax:

 I understand that Government is thinking of introducing STT tax, like the one in the equity market. STT tax should not be charged on bullion dealers & jewelers, as it will only increase the metal price and in turn increase the price for the customers. It should be charged onto speculators only.

5.        For Corporate Bullion Dealers:

 Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain years earning a fixed rate of interest.  The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold.

6.         Schemes:

Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

7.        Tenure:

I expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days.

8.        Goods and Service Tax

Most importantly, GST implementation is a must. If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management. A flat 1% across India should be levied by the government, which would replace most indirect taxes currently in place.

Any other suggestions are welcome. They will surely be put forward to create a better environment not only for bullion dealers or jewelers but also for the common man.