The gold industry on Friday unanimously slammed the steep hike in import duty of gold and precious metals from 10 per cent to 12.5 per cent, saying it will backfire and hit the Indian retail market.
World Gold Council India Managing Director P.R. Somasundaram said the hike will impede efforts to make gold as an asset class, particularly when gold prices are already rising globally, and the grey market will thrive which will dilute efforts to reduce cash transactions.
"Millions of Indians invest in gold as part of their household savings, not simply as discretionary spending for consumption. People buy gold as a long-term investment to protect their wealth and gold also has huge significance socially, emotionally and economically in India," he pointed out.
According to Somasundaram, the duty will be counter-productive to the objectives stated in the last year's budget and encapsulated in NITI Aayog's recommendations to transform the gold market.
"We believe that gold can play a positive role in the Indian economy, but to enable this, there needs to be a reduction in overall taxes, a stable policy environment and a transparent trading market," he said.
A disappointed Gem & Jewellery Export Council (GJEPC) Chairman Pramod Kumar Agrawal said the increase in import duty on gold, silver and precious metals, cut and polished diamonds will result in cost of business going up, export competitiveness going down and lead to Indian exporters losing their business to neighbouring countries.
He said the industry is already going through tough times with declining exports and job losses and was hopeful of some concessions that could release blocked capital.
"Instead, the hike in import duty of gold-silver and not reducing the import duty on processed diamonds and gemstones will help business grow in neighbouring countries as foreign tourists will stop buying from India. Processing of larger diamonds will shift to countries like China and Vietnam," Agrawal rued.
He sought a rollback and further reduction in import duties on gold and precious metals, besides slashing import duty on cut and polished diamonds from 7.5 percent to 2.5 percent to strengthen India's position as a global leader in the industry.
Agrawal said that the Indian gem and jewellery industry is worth around $41 billion and contributes 7 percent to India's GDP and 15 percent to merchandise exports, employs around five million and provides livelihood to 1.5 million families.
Malabar Gold & Diamonds Chairman Ahammed M.P. termed the decision as "a double whammy for the gold retail industry, which is critical for creating the much-needed jobs" in the economy.
"On one hand it will lead to a substantial increase in input costs of the industry shooting up the retail prices up and hitting sales. On the other hand, it will provide a stimulus for illegal shipment of gold into the country which will further hurt taxpaying players in the segment," he said.
In view of the critical role played by gold industry in supporting economic growth and jobs creation besides exports, he urged the government to reconsider the move.
"It is our long pending demand that the Government should lower the import duty on gold to 5 per cent level to make illegal trade in gold unattractive," Ahammed said.
Bans Group Chairman Abhishek Bansal said that the hike in import duties on gold and precious metals indicates the government's move to discourage imports of physical gold and promote digital gold in the form of ETFs, gold bonds, etc.
With this, gold demand in India may drop further as the current prices are already very high and jewellery has become unaffordable to small households, besides giving a setback to the gem and jewllery industry.