New Delhi: With the finance ministry likely to roll back the proposed excise duty on unbranded jewellery, jewellers ended their 21-day strike on Friday. Though there was no official word, industry representatives were upbeat after a late afternoon meeting with finance minister Pranab Mukherjee.
Central Board of Excise and Customs (CBEC) chairman SK Goel told reporters the finance minister has assured traders he would address their concerns when Parliament takes up the Finance Bill, 2012.
In Budget 2012-13, Mukherjee proposed an excise duty at the rate of 30% of the invoice price on un-branded jewellery. So, if a jeweller sells an ornament for, say, R50,000, the tax would be levied at tariff value on the sum shown in the invoice. The actual incidence of the tax works out to lower than 1% of the declared price.
The finance minister also made it mandatory for jewellers to deduct a 1% tax at source for sales of jewellery worth R2 lakh or more. Besides, customers buying R2 lakh or more of unbranded jewellery will also be required to mention their permanent account number. In addition, customs duty on gold has been doubled to 4%.
After meeting Mukherjee, Bombay Bullion Association president Prithviraj Kothari told FE they will resume work from Saturday, while All India Sarafa Association general secretary Surendra Jain said the strike has now been suspended until May 10. Gems and Jewellery Trade Federation notified members to resume work until May 11. However, traders and jewellers have warned of another round of protests if the Finance Bill isn’t tweaked suitably to accommodate their demands.
The ministry took the steps after noticing a surge in the import of gold and the diversion of financial savings within the economy to investments in the yellow metal. The surge has helped worsen the current account deficit to 4.3% of the GDP, the highest for the Indian economy, and put pressure on the exchange rate of the rupee.
But as political parties across the spectrum lent support to jewellers, the finance ministry had to soften its stance on Friday.
The government is expected to seek Parliament’s approval for the Finance Bill in early May. Traders said they lost business worth R20,000 crore due to the strike that started on March 17, a day after the Budget was presented.
Earlier in the day, jewellers met UPA chairperson Sonia Gandhi and requested her to ask the government to roll back its decision.
All India Swarankar Sangh President Madhukar Chachad said Gandhi has “assured us that she will forward our demands to the finance minister for further action”. Prior to this meeting, Congress general secretary Janardhan Dwivedi also asked the government to consider the demands “sympathetically”. Late last month, BJP’s Sushma Swaraj had called for a review of the proposals.
Bullion industry executives have warned such provisions will squeeze imports of gold – which holds immense traditional value in Indian wedding and other auspicious occasions – by at least 25% this fiscal year and crimp demand. This will also mark the return of the inspector raj of the pre-liberalisation period, an apprehension the CBEC feels is grossly misplaced.
“The finance minister also assured that the import duty imbalance for jewellery imported under the free trade agreement from Thailand and other issues faced by the gems and jewellery exporters due to recent announcements in the Budget will be looked into,” Gem and Jewellery Export Promotion Council said in a statement.
India, the world’s largest gold consumer, is estimated to have imported bullion worth a record $58 billion in 2011-12, compared with $42 billion a year before, as investors have sought refuge in it haven’s status. Gold rallied to a record $1,921.15 an ounce on the London Metals Exchange on September 6 and headed for an 11th straight annual increase, highlighting its appeal as an investment tool. Domestic gold prices have risen 32% in 2011, thanks to the global financial crisis and a weak rupee.
Huge imports over the year have made Indians the world’s largest hoarders of gold, with rural households alone piling up 18,000 tonnes of jewellery and bars worth nearly $1 trillion. Economists argue higher import tax is a wise step as the government will gain revenue even if imports continue to remain at stubbornly high levels.
“The import of gold of such magnitude strains balance of payments and affects exchange rate of the rupee through impacting supply-demand balance of foreign exchange,” Mukherjee had said last month.