Unlocking Growth: The Indian Gems and Jewellery Sector’s Ambitious Union Budget Proposals
The Indian gems and jewellery sector, a cornerstone of the nation’s economy and a significant contributor to its cultural heritage, is at a crucial juncture. As the Union Budget for 2019-20 approached, leading industry bodies united to present a comprehensive set of proposals aimed at fostering sustainable growth, enhancing global competitiveness, and ushering in an era of greater transparency and formalization. These demands, ranging from crucial adjustments in import duties to innovative financial reforms, underscore the industry’s commitment to modernizing its operations and addressing long-standing challenges. With an eye on leveraging India’s rich craftsmanship and market potential, the sector is proactively seeking governmental support to solidify its position on the global stage and better serve its vast domestic consumer base.
Streamlining Gold Imports: A Critical Call for Duty Reduction
One of the most pressing issues articulated by the industry is the high import duty on gold. The All India Gem and Jewellery Domestic Council (GJC), a prominent voice for the domestic market, vehemently advocated for a significant reduction in the gold import duty from the existing 10 percent to a more manageable 4 percent. This call was echoed by the Gem Jewellery Export Promotion Council (GJEPC), highlighting a unanimous industry stance. The rationale behind this demand is multi-faceted and deeply rooted in economic realities.
Originally, the 10 percent import duty was imposed as a measure to curb India’s burgeoning current account deficit (CAD). However, as the GJC pointed out in its representation, the CAD had considerably narrowed, registering at a more comfortable 2.5 percent of GDP in 2019. This significant improvement effectively negates the primary justification for such a high duty. GJC Chairman Anantha Padmanabhan emphasized the direct correlation between the elevated duty and the proliferation of illicit trade, stating, “We want the government to reduce the import duty to 4 percent which will help in completely eradicating the grey market.”
The implications of a reduced import duty are profound. Firstly, it would substantially diminish the incentive for gold smuggling, thereby bolstering legitimate channels of trade and allowing the government to better regulate the market. This shift from an informal to a formal economy would enhance tax revenues, improve data accuracy, and ensure consumer protection. Secondly, lower input costs for gold would translate into more competitive pricing for jewellery, benefiting consumers and potentially stimulating demand. This move is expected to not only bring transparency but also inject renewed vigor into the entire value chain, from manufacturers to retailers, ultimately strengthening India’s position as a responsible and compliant global player in the gold market.
Fostering Digital Transactions: Rethinking Bank Commissions
In an era increasingly defined by digital payments, the gems and jewellery sector is keen to embrace technological advancements and promote cashless transactions. However, a significant impediment currently hinders this transition: the high bank commission charged on credit card transactions. GJC highlighted that banks typically charge an exorbitant 11.5 percent commission on credit card payments, a cost that is invariably passed on to the customer. This effectively makes jewellery purchases 11.5 percent more expensive for consumers opting for digital payments, thereby paradoxically encouraging cash transactions.
To counteract this and boost the adoption of digital payments, the industry has urged the government to either completely waive off this bank commission or significantly reduce it to a nominal 0.20 percent. This reduction would align the cost of digital payments with the government’s broader agenda of financial inclusion and a less-cash economy. By making digital transactions more attractive and cost-effective, the industry aims to increase transparency in financial dealings, reduce the reliance on cash, and enhance the overall formalization of the sector. Such a move would not only benefit consumers by offering greater payment flexibility without punitive surcharges but also streamline operations for jewellers, contributing to a more robust and modern retail ecosystem.
Empowering Organized Business: Relief from Capital Gain Tax
The Indian gems and jewellery industry, despite its traditional roots, is striving for greater organization and adherence to modern business practices. To facilitate this crucial transition, jewellers have sought relief from capital gain tax. The current tax structure can sometimes act as a deterrent for businesses looking to restructure, consolidate, or invest in expansion, which are all essential steps towards formalization. By easing the burden of capital gains tax, the government could incentivize businesses to move away from unorganized structures and embrace compliant, transparent operational models.
This proposal is not merely about financial relief but about encouraging a systemic shift within the industry. Capital gain tax relief would empower businesses to make strategic investments, upgrade technology, improve infrastructure, and attract formal financing, all of which are vital for long-term growth and global competitiveness. It would foster an environment where businesses are rewarded for adhering to regulations and contributing to the formal economy, leading to a more robust, stable, and reputable gems and jewellery sector.
Enhancing Accessibility: EMI Facilities for Jewellery Purchases
Recognizing the aspirational nature and often high value of jewellery purchases, the GJC has also urged the finance ministry to extend Equated Monthly Instalment (EMI) facilities to the gems and jewellery industry. For many Indian households, particularly for significant life events such as weddings, jewellery represents a substantial investment. The lack of widely available and accessible EMI options can make these purchases challenging, limiting consumer access and impacting industry sales.
The introduction of EMI facilities would democratize access to high-value jewellery, making it more affordable and attainable for a broader segment of the population. This would significantly boost consumer demand, especially in the organized retail segment, and provide a much-needed fillip to the industry. By spreading the cost over manageable monthly payments, consumers can plan their purchases more effectively, leading to increased sales volumes for jewellers and fostering a more stable demand environment for the sector as a whole. This move would align the jewellery industry with other major consumer goods sectors that successfully leverage EMI schemes to drive sales and enhance affordability.
Addressing Rural Needs: Raising the PAN Card Limit
One of the most practical and socially relevant demands put forth by the industry concerns the Permanent Account Number (PAN) card limit for cash transactions. Currently, a PAN card is mandatory for cash transactions exceeding Rs 2 lakh. While this regulation aims to curb black money, it inadvertently creates significant hurdles for a large segment of the Indian population, particularly in rural and agricultural areas, who may not possess PAN cards but require traditional jewellery for cultural events.
The GJC eloquently articulated this challenge: “A mangalsutra, four pieces of bangles, a small nose pin along with rings for bride and groom weighs more than 100 grams which itself costs around Rs 3-4 lakh. Many households do not hold PAN cards, especially in the agriculture sector. Hence, they face difficulty in arranging the minimum required jewellery.” To address this, the industry has recommended raising the PAN card limit from Rs 2 lakh to Rs 5 lakh. This adjustment would reflect the actual value of traditional jewellery sets and accommodate the purchasing power and practices of a significant portion of the Indian populace. It would ensure that cultural and traditional necessities are not hindered by bureaucratic constraints, promoting greater inclusivity and easing the financial burden on countless families during crucial life events, while still maintaining checks against illicit financial flows.
Boosting Diamond Trade: Strategic Policy Reforms
Beyond gold and domestic market concerns, the diamond sector, a vital component of India’s export economy, also presented a series of critical proposals aimed at maintaining its global leadership and fostering further growth.
Reducing Import Duty on Cut & Polished Diamonds
The GJEPC, in its pre-Budget proposals, specifically sought a reduction in the import duty on cut and polished diamonds from the prevailing 7.5 percent to a mere 2.5 percent. Similar to gold, this duty was initially increased to mitigate the current account deficit. However, GJEPC Chairman Pramod Agrawal highlighted a significant issue: “Mis-calculation happened in compiling import figures by DGCI&S as the returned consignments were not taken into consideration.” This statistical anomaly led to an inflated perception of imports, justifying a higher duty that ultimately stifles the industry. A reduction to 2.5 percent is deemed essential to create a “level playing field with other world centres” and to preserve India’s undisputed global leadership in diamond processing and trade.
Implementing a Realistic Turnover Taxation Regime for SNZs
To further cement India’s status as a global diamond trading hub, the exporters’ body also advocated for the introduction of a realistic turnover taxation regime, akin to the model successfully implemented in Belgium. This regime would apply specifically to Special Notified Zones (SNZs) designated for diamond trading in cities like Mumbai. The primary objective is to provide an attractive facility for Foreign Mining Companies (FMCs) or their trading arms – particularly those without direct sales offices in India – to leverage the SNZ for trading rough diamonds. A simplified and globally competitive tax structure would incentivize these key players to bring their rough diamonds to India, rather than other trading centers, thereby boosting activity, employment, and India’s overall share of the international diamond market.
Establishing a Special Notified Zone (SNZ) in Surat
Recognizing Surat’s unparalleled stature as the world’s largest diamond cutting and polishing hub, especially for small gemstones, the GJEPC urged the government to establish an additional Special Notified Zone (SNZ) in the city. This strategic move would provide direct access for the numerous Small and Medium Enterprises (SMEs) based in Gujarat to mining companies. Such a zone would streamline the supply chain, reduce logistical complexities, and empower smaller players in the sector by offering them direct access to rough diamonds. An SNZ in Surat would not only reinforce the city’s pre-eminence but also fuel regional economic growth, create jobs, and foster innovation within the SME segment, which forms the backbone of India’s diamond industry.
Standardizing Classification: Separate HS Codes for Lab-Grown Stones
With the advent and growing market presence of laboratory-grown diamonds and gemstones, the industry faces a new challenge of clear classification and differentiation. To ensure transparency, prevent misrepresentation, and facilitate accurate trade data, the GJEPC demanded the introduction of separate Harmonized System (HS) Codes for all laboratory-grown stones. Specifically, they proposed adding 71042010 for laboratory-grown diamonds and a broader expansion of HS codes under both precious metal jewellery and imitation jewellery categories.
This clear classification is crucial for maintaining consumer confidence, distinguishing between natural and synthetic products, and enabling precise import/export monitoring. It would empower customs authorities, facilitate fair trade practices, and allow for targeted policy interventions for each distinct category. By proactively addressing this emerging segment, the industry aims to ensure an orderly and transparent market for both traditional and technologically advanced products.
Conclusion: Paving the Way for a Vibrant Future
The comprehensive set of proposals put forth by the Indian gems and jewellery sector ahead of the Union Budget for 2019-20 represents a clear vision for its future. From reducing gold import duties to combat smuggling and boosting legitimate trade, to modernizing payment systems through commission waivers, and fostering organized growth with capital gain tax relief, each demand is meticulously crafted to address specific industry challenges. The emphasis on expanding financial access through EMI facilities and inclusive PAN card limits underscores a commitment to the domestic market and its diverse consumer base.
Simultaneously, the proposals for the diamond sector – including duty reductions, favorable taxation regimes for SNZs, new SNZ locations, and distinct HS codes for lab-grown stones – highlight a strategic drive to maintain and enhance India’s global leadership. Collectively, these measures promise to create a more vibrant, competitive, and transparent industry that is well-equipped to navigate global dynamics and contribute significantly to India’s economic prosperity. The government’s proactive consideration and implementation of these recommendations would undoubtedly pave the way for a golden era for the Indian gems and jewellery sector, strengthening its cultural legacy and economic prowess for years to come.