JEWLERS here in Mumbai and other parts of India are on a three day strike to protest the Indian government’s hike in excise, customs duties and a consumer tax on gold imports, writes MineWeb‘s Shivom Seth in Mumbai.
Even as traders and analysts allude to the sops given by the Chinese government to promote Gold Investment through various means, they noted that the Indian government’s discouraging tactics to tackle its balance of payment crisis could well backfire and lead to a massive revenue loss.
Some 700 jewelers in Rajkot, Gujarat, 3000 jewelers in Ahmedabad and Surat and more than 1200 jewelers in Mumbai, from the famous Zaveri Bazar area have also threatened to continue the strike for an extended period, some say indefinitely, if the government does not retrace its duty cuts.
Since finance minister Pranab Mukherjee made the proposals in his budget for 2012-13 on Friday, around 90% of the jewelers across the country have decided to down their shutters as a mark of protest. Traders insist that the move to double customs duty on gold in India would push up retail jewelry prices and depress demand.
Many jewelers and traders maintained that higher Gold Prices have already lowered jewelry demand by 44% to 103 tonnes in the December quarter. Others insisted that the duty and levies have shocked consumers and will keep them away from the market for the better part of the year.
Anjani Sinha, CEO of the National Spot Exchange in Mumbai, said for the last several years the Chinese Government has been keen to promote investment in gold among its citizens and has been using various means to get this message across. “On the other hand, India has been discouraging gold imports. The move may lead to an increase in gold imports through unofficial channels and could also result in a massive revenue loss to the government,” he said.
A more effective tool to achieve this objective, according to Sinha, would have been the issuance of gold bonds with attractive interest coupons. “The scheme should be so attractive that it would lure Indian households to deposit their gold ornaments with banks or Reserve Bank approved mints in exchange for a gold bond. This gold can be melted, refined, converted into hallmarked gold bars and resold by the banks in the domestic market. This would help reduce the import of gold in India without impacting the domestic demand and supply dynamics,” he added.
Noting that the government may even work out modalities for the fungibility of such gold bonds into ornaments at approved jewelry shops, Sinha added that gold imports declined by 42% in the December quarter due to rising prices and various measures taken by the government.
The All India Gems and Jewellery Trade Federation, has asked its many members at Zaveri Bazar, the hub of gem and jewelry business in Mumbai, to down their shutters in a bid to see a withdrawal in taxes. The All India Sarafa Association’s president Sheel Chand Jain said his association had written to the finance minister insisting that such a move would spell the death knell for jewelry traders across the country.
India’s finance minister though is unperturbed. Speaking to a newswire agency, he said in two consecutive years about $90 billion of precious foreign exchange was used in importing gold making it the second biggest item of import after oil.
“Though people in India are ‘crazy’ for gold because they invest either in real estate or this metal feeling that their value would go up… it is not a good habit”, he said. Asked to comment on the striking jewelers, he has said if the intention is to put pressure on the government to retrace its steps, “it will simply not work”.
Bullion trader at Zaveri Bazar, Bachhraj Bamalwa said by raising the duty further to 4%, the Indian government was keen to encourage smuggling of the precious commodity. “There is no way that smuggling will not happen now. During difficult times, the government should come out with innovative ideas to tackle the issues. Markets provide various solutions to contemporary issues,” he said.
Similarly, the gold, diamond and silver jewelry houses across North India remained closed as part of the nationwide strike call. “Less committed global investors will continue to exit the gold market as confidence over economic growth improves, but in India, any small occasion becomes a time to buy some gold,” said Punit Agarwala, bullion trader.
He added gold is so much a part of the Indian culture. “In South India, some political parties decided to give free ‘mangal sutra’, a piece of gold given to brides, as a token of their appreciation. India has been witnessing its election drama which has been playing out across the country, and gold has played an integral part in every aspect,” he said.
Anil Talwar, co chairman of the Federation of Indian Chambers of Commerce and member of the Governing Board of the jewelry federation said that it has been decided that all jewelry stores would remain closed till Monday. “We will meet this evening and decide the further course of action,” he said.
The federation is demanding a roll back in some new provisions in the budget, which say they will have a very negative impact on the sector. Talwar also said that the additional taxes levied on the industry were not practical and that the disparity in price of gold internationally and in the local market would increase smuggling of the precious metal.
Traders said that though the government was alarmed by the drain of precious foreign exchange in the form of rapidly escalating bullion imports, seeking to rein in gold imports by doubling the rate of customs duty was not the right step.
Jewelers from the well-known Dariba Kalan market in New Delhi, observed the strike showing their dissent against the move. “We have closed our market in accordance with all the gold shops in the country. We were hoping for some help from the government, this will actually kill us,” said Naresh Das Khanna, the president the local Dariba Sarafa Association of jewelers.
Meanwhile, in Mumbai, jewelers from Zaveri Bazar said they would prefer to lose business rather than continue to operate under the excise and custom levies.
“Due to an increase in the price of gold we have already lost many customers. Now, customers will divert to other things like silver jewelry, and other forms of imitation jewelry. No one will Buy Gold jewelry or even Gold Coins now,” said Vikram Jain, a jewelry trader.
Many of the jewelry outlets in Mumbai have threatened to go on an indefinite strike if the government does not pay heed to their demand.
“The levy of excise duty would require huge paper work and the system will be prone to misuse at all levels and give rise to unhealthy competition where jewelers might actually use less carat gold in their jewelry. There are over 5m artisans employed in the bullion and jewelry trade and any disruption in their services would give rise to a severe law and order problem in the country,” said Manjit Singh, bullion trader.
Bhayabhai Saholiya, president of Rajkot Gold Dealers Association said, “Gold has always been a high value product. The sale of gold jewelry in Gujarat has been declining because of the cost. With this move, small and medium jewelers will have to shut their business,” he said.
Rajiv Jain, chairman, Gems and Jewellery Export Promotion Council, said India’s budgetary proposals would mean a 400% hike on the commodity from pre-January 2012 levels.
He added that the low duty on gold till last year had helped bring in more businessmen to the organized gems and jewelry sector from the unorganized sector. “Earlier excise duty was imposed only on branded jewelry, the Budget has covered all kinds of jewelry under excise. We had asked the government to do away with the excise duty,” he said.
