Pre-Budget Views 2020

There has been a steep decline in jewellery sales over 12 months, and jewellers are facing adverse impacts of the slowdown because of the increase in gold prices, and a slowing of the overall economy.  Moreover gold prices have sky rocketed over the past few months which has further dampened the demand.

At present, gold attracts an import duty of 12.5 percent and a GST of three percent.

This increase in customs duty for cut and polished coloured gemstone is the biggest hit. Additionally, the increase in import duty on gold has had a spill effect and made the grey market stronger. With these duties, it becomes difficult to compete in the world market and export, as China is a major competitor. In fact in the past few years China has overtaken India as the world’s largest consumer of gold.

The volatility in the markets has also pushed gold sales down. Even though safe haven demand is there but in the retail jewellery market, the sales haven’t picked up much.

In the run-up to the Union Budget speech on February 1, 2020, Indian micro, small, and medium enterprises (MSMEs) in the gold jewellery segment are feeling the impact of the decline in jewellery sales. The country saw demand for gold falter in the second half of 2019. Some factors for the decline include a rise in international prices (India imports most of its gold), hike in import duty from 10 percent to 12.5 percent, and liquidity crunch in the Indian economy. And, the Union Budget 2020 could go a long way in alleviating some of these concerns if it focuses on lowering import duty on gold.

Jewellers hope for the volatile market to settle down. They are expecting Union Budget 2020 to come up with good policies to bring stability and better phases in the jewellery industry as there is an immediate requirement to cut down custom duty and import duty charges.

Hoping that this year’s Budget will provide for a reduction in duty on imports of cut and polished diamonds. The gold and jewellery industry is going through one of its toughest phases. However, gold jewellery exports grew 21 percent from November 2018 to November 2019, according to the Gem & Jewellery Export Promotion Council (GJEPC) data.

The Union Budget 2020 is expected to provide for a reduction in the import duty on gold because there is an immediate need for a cut in customs duty.

A possible import duty cut on gold in the upcoming Budget could curb smuggling and boost sagging imports. Commerce Ministry has reportedly asked for a reduction in import duty on gold to boost exports and manufacturing in the gems and jewellery sector. Import duty on gold was increased from 10 to 12.5 percent in the previous Budget.

Despite what the Budget may hold for the segment, volume growth for jewellers is expected to increase on the back of reintroduction of low-cost gold metal loans and likely stabilisation of gold prices at lower levels.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.