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RAPAPORT... India's Finance Minister, Arun Jaitley, presented the fiscal budget for 2015 and with a couple of exceptions, industry leaders felt it missed key growth initiatives that are tied to the "Make in India" scheme. Expressing strong disappointment with the budget, Mehul Choksi, the chairman of the Gem and Jewelry, Luxury and Lifestyle Forum (GJLL) of FICCI (Federation of Indian Chambers of Commerce and Industry), said that none of the relief measures that were recommended to boost the jewelry manufacturing sector under the "Make in India" initiative were considered by Jaitley. Choksi said, “The finance minister has announced a slew of measures to curb black money in India, while ignoring one of the biggest issues due to gold smuggling to the tune of 180 tons that has come into India through unofficial channels in 2013.” According to Choksi, the impact of this unofficial supply of gold is valued at about $10 billion, "leading to a loss in foreign-exchange inflow of a similar amount and a loss in revenue of over $1 billion on account of customs duty.” He added, “The 2 percent import duty on gold levied two years back, to control the current account deficit, should have ideally been rolled back given the current, positive state of affairs. This did not find any mention in the sectoral or taxation reforms announcements.” Never one to express disappointment easily, the budget also irked the chairman of the Gems & Jewellery Export Promotion Council (GJEPC), Vipul Shah, who said, “As far as the gems and jewelry industry is concerned, our only reaction is disappointment! The finance minister has completely overlooked one of the most significant areas to curb black money and a long pending demand from the gem and jewelry industry to reduce the gold import duty. Smuggling of gold plagues the industry and leads to illegal trading and the duty reduction would have helped us control the issue to a very large extent.” According to Choksi, the industry has suffered a loss in sales and exports, as the landed cost of official gold supplies have increased to about 20 percent above the international price, resulting in a huge surge in the smuggling of gold. He explained, “The jewelry exports, unlike the exports of many other sectors, are done by micro-manufacturers and karigars from across the country. With the current duty levy, the raw material is itself more expensive than the exports of jewelry, making it a non-lucrative business model and leading to a dip in the exports.” Choksi suggested that this could have been avoided if the finance minister rolled back the import duty of gold to 2 percent as the current account deficit came under control. The import duty on gold is not only making it unattractive for consumers in India, but due to the escalated cost of jewelry, the NRI (non-resident Indian) customer, too, is seen shopping elsewhere -- especially in Dubai. Choksi elaborated, “The Indian NRI customer is a significant buyer of jewelry from India and almost 10 percent to 15 percent of jewelry sales during festive seasons come from this segment. Due to the increased costs of jewelry, this buying segment has shifted to Dubai from India. Hence, the loss of exports and sales to NRI customers because of existing high import duty will continue to be a concern area due to the tenfold increase in custom duty that is levied on gold imports. In addition, purchases by NRI customers and returning NRIs have completely evaporated because of the huge difference of over 20 percent between the gold price in India as compared to Dubai or Singapore.” According to Shah, the other things missed by the finance minister included “Some of the other critical matters that should have been addressed -- the simplification of the process for direct sourcing of rough diamonds, the introduction of turnover-based income taxation system and an exclusive and separate duty structure for natural and synthetic diamonds.” It must be noted that the Indian jewelry manufactures and retailers make a significant contribution of 6 percent to 7 percent toward India's gross domestic product, creating value addition of Rs 100,000 crores, not to overlook the 14 percent contribution to exports, which, by value, are second only to textiles and apparel. The gem and jewelry sector is also one of the top employers, where 90 percent of manufacturing is by ‘karigars’ and 80 percent of retailing by independent jewelers. Still, Choksi found one initiative in the budget that he agreed with. “The gold monetization announcement is a positive initiative by the government and we hope that it is implemented well and is investor friendly.” Shah, too, appreciated this move by the finance minister, stating, “We commend the finance minister’s effort to identify innovative ways to reduce demand for overseas gold demand and control the current account deficit by introducing the gold monetization scheme to and Indian gold coins.” Choksi also sounded optimistic when he said that the industry was hopeful that the finance minister would consider this roll-back in the near future due to its adverse impact on the overall economy and the industry.
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