Fearing that an increase in customs duty will have a negative impact and encourage the grey market, the jewellery industry was disappointed with the announcement of a hike on customs duty on gold from 10 per cent to 12.5 per cent in the Union Budget presented by Finance Minister Nirmala Sitharaman Friday.
An increase in customs duty coupled with GST will hike the prices by 15.5 per cent, chairman of All India Gem and Jewellery Domestic Council N Anantha Padmanaban said.
"Smuggling is already on the rise and this move will further boost the grey market, which will provide 4-5 per cent discount making it attractive for consumers. We expect the grey market will increase by 30 per cent," he said.
Padmanaban said all industry bodies were planning to meet Sitharaman next week to request an immediate rollback of the customs duty hike.
Colin Shah, vice chairman of Gems and Jewellery Export Promotion Council, said the Budget was very disappointing for the industry. "This move will harm the exports of gold jewellery, increase the cost of doing business and smuggling will grow," he said.
World Gold Council Managing Director, India, Somasundaram PR said the hike in import duty would dilute efforts to reduce cash transactions and encourage the grey market.
"Today’s announced import duty hike on gold from 10 per cent to 12.5 per cent will negatively impact India’s gold industry. It will impede efforts to make gold as an asset class particularly when gold prices are already rising globally," Somasundaram said.
Meanwhile, as a result of the hike in customs duty, gold prices in the national capital escalated by Rs 590 to Rs 34,800 per 10 gram. While the prices of gold of 99.9 per cent purity and of 99.5 per cent purity rose by Rs 590 each, the price of silver ready declined by Rs 80 and stood at Rs 38,500 per kilogram.
Abhishek Bansal, chairman of ABans Group of Companies, said the demand for gold in India might drop further as prices were already at multi-year highs and small pocket households would not be able to afford jewellery.
Malabar Gold and Diamonds chairman Ahammed MP said the rise in import duty on gold would be a double whammy for the gold retail industry, a crucial segment for creating the much-needed jobs for the economy.
"This is because on the one hand, it will lead to a substantial increase in input costs of the industry sending the retail prices up and hitting sales. On the other hand, it will provide a stimulus for the illegal shipment of gold into the country," he said.
Kalyan Jewellers chairman and managing director T S Kalyanaraman said the increase in customs duty on import of gold would increase the illegal supply of gold in the market.
Muthoot Exim chief executive officer Keyur Shah said that a hike in customs duty on gold might not help curb ongoing illegal entry of gold into the country. "It may help shore up government revenues required for infrastructure and social sector spends," he said.