Indian jewellers strike to weigh on gold demand
The effects of an on-going strike by Indian jewellers, which the All India Gems and Jewellery Trade Federation says is costing the industry about US$150 million per day, are expected to have a negative impact on gold demand in the world’s second largest consumer of the yellow metal.
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Just days after an almost three week nationwide strike was called off by several jewellery associations, the Times of India reports that an industry body in the state of Maharashtra, which includes Mumbai, will continue with its indefinite strike.
The jewellers are protesting against excise duties of one per cent without input tax credit, and 12.5 per cent with input tax credit, announced in the country’s national budget for 2016/2017.
At the time of the announcement several industry bodies expressed apprehension. “In India, jewellery is largely produced by the Small and Medium Enterprises (SMEs) and they are not equipped to follow the rigid compliance of excise norms.
The imposition of excise would severely impact jewellery production in India resulting in loss of employment to the uneducated but skilled jewellery workers,” said Praveenshankar Pandya, chairman of the Gem Jewellery Export Promotion Council.
The All India Gems and Jewellery Trade Federation warned that the country’s jewellery industry, which has been “nurturing a 2000 year old craft will be destroyed by one simple act of government policy”.
The government this week issued letters to customs officials which states that excise officers are not to visit jewellers and that arrests or criminal prosecution of jewellers will not be permitted until a soon-to-be formed sub-committee publishes its compliance-related recommendations.
Still, jewellers are demanding that the duty be scrapped altogether. “The government has only issued a notice that all our concerns would be addressed.
Necessary changes
However, unless the government makes the necessary changes in the Act, the local tax authorities will continue to harass us. We want the government to roll back the excise duty altogether,” Abhay Gadgil, a board member of the Maharashtra Rajya Saraf and Suvarnakar Fedederation, told the Times of India.
There is also concern that the strike may weigh on gold demand and the recent rally in gold prices. “India’s gold demand has slowed quite sharply over the past two months and the imposition of the duty could have a further dampening effect,” said Capital Economics’ Simona Gambarini in an emailed response to questions. She added that a government backtrack in response to the protests, should see an uptick in demand.
India’s gold imports fell to a two-year low in February as jewellers and consumers delayed purchases amid speculation that the government would lower its 10 per cent import duty on the metal in its annual budget.
Purchase delays
Purchases were also delayed in the hopes that the gold price, up more than 20 per cent in rupee terms compared to a 16.5 per cent increase in dollar terms as at 29 February, would fall. “This led to softer consumption in the run-up to the budget release despite traders offering ‘record discounts’ in place of the premiums usually charged over international prices,” said Seamus Donoghue from Allocated Bullion Solutions. “While premiums have recovered slightly since then, albeit remaining in negative territory, March import data are likely to be weak as a jewellers’ strike curbs demand,” Gambarini said.
India’s government is seeking to curb the country’s annual gold imports of up to 1 000 tonnes, thereby easing the country’s current account deficit. The country’s gold import bill rose around 12 per cent year-on-year to US$36 billion in 2015. — Times of India.
