Tax and regulatory restrictions on gold imports have adversely affected exports of jewellery and other finished products, rendering thousands jobless in the labour-intensive sector.
The recent decision by the Reserve Bank Of India (RBI) to allow more entities to import gold has somewhat eased supplies but it?s not enough to script a rebound in exports of finished gold products in a big way unless the government lifts all restrictions including the 10% customs duty, according to jewellers.
The import duty coupled with the RBI?s 80:20 rule have driven up raw material prices and dented India?s competitiveness in exports of jewellery, bars, coins and medallions. The RBI last year mandated that at least one-fifth of imported gold must be kept aside for re-exports, and no fresh tranche of imports by an agency would be allowed until 20% of the previous imported volume is exported after value addition, causing premiums to rise by up to 12% of the price overseas.
But while these restrictive measures failed to contain domestic demand, which rose 13% to 975 tonnes in 2013, they choked official gold imports and affected domestic jewellery manufacturing, which is employment-intensive.
Worse, exports of gold products crashed by 39.6% in the last fiscal to $11.04 billion from a year earlier, defeating the very purpose of imposing the 80:20 rule. Even in the first two months of this fiscal, gold product exports remained flat at $1.59 billion, against $1.56 billion a year ago and much lower than the 8.9% growth in overall exports.
Also, smuggling has picked up, while paperwork for sourcing the raw material through official channel has risen leading to complaints of harassment by customs officials.
Vijay Khanna, head of Delhi-based Khanna Jewellers, recently said: ?I have got export orders for which I need 50 kg of gold to deliver on time. But my supplier Nova Scotia says the clearance for its gold consignment has been delayed by customs officials.?
?At the ground level, customs officials are taking time to act, which is causing inordinate delays to jewellers,? Gitanjali Group chairman Mehul Choksi told FE. So while the latest norms should help exports in the sense supply shortage is addressed in a somewhat restricted manner, the red tape should be reduced, Choksi said.
Most jewellers, who had to deplete their inventories to cater to high demand last year, especially due to restrictions on raw material imports, are lobbying hard for the lifting of these curbs this year as they need to replenish their stocks. The sharp rise in June gold imports is a pointer towards the requirement from jewellers ahead of the festival season.
Moreover, most jewellers found the 80:20 rule perturbing because exports of gold products were in any case much higher than 20% of the value of imported gold, even without factoring in making charges. ?Our cost competitiveness in the export market was severely affected by the 10% import duty on the raw material when competing nations import the metal duty-free. So while domestic jewellers were struggling to cope with that, the RBI imposed the 80:20 rule, which drove up premiums significantly. Although the premiums have dropped now, supply fears haven’t abated completely yet as the 80:20 rule is still effective,? said Sachin Kothari, director at Bullion India.
Jewellers said expectations that the new government could soon reduce import duty drastically and RBI’s relaxed guidelines in May have driven down premium to a one-year low of $1-2 per ounce, down sharply from a record $160 per ounce in December last year. However, they warn if the government doesn’t ease the curbs now, the premiums may start climbing again, further eroding cost competitiveness.
Suvankar Sen, executive director at Kolkata-headquartered Senco Gold, the largest jeweller in eastern India, said: ?I expect exports to rise around August once Ramzaan is over, as during this period jewellery purchases are usually less in West Asia, our main market.?
However, fears of raw material crunch still persist. We have held back any expansion plan and are awaiting more clarity in the government position,? he added.
Ramesh Kalyanaraman, executive director at Kalyan Jewellers, said: ?Although as a company, we are not facing any problem now in sourcing raw material, the abolition of the 80:20 rule will help a lot.?
Pankaj Parekh, vice-chairman of the Gems and Jewellery Export Promotion Council, questioned the RBI move. ?When there is a prohibitive duty of 10% on imports, what is the need to impose the 80:20 rule? You don’t force a patient to undergo both allopathy and homeopathy treatment at the same time,? he said.