Hoping For the Good Times-Budget Expectations

The Indian gems and jewellery industry is hoping that the forthcoming budget would be more industryfriendly,which would lead to further growth of the industry. Kavita Parab spoke to few industry playersto know their views on the forthcoming budget.

Post By : IJ News Service On 01 January 2017 5:25 PM

Review of FY16 for the jewellery industry

Sachin Jain: The year 2016 has been an extremely challenging year in all aspects of business. The year began on a positive note but markets plummeted due to the 45 day strike which evoked instability, unsettling the business community. With effectively only 10 operating months instead of 12 in 2016, jewellers put in their best effort and considerably recovered. The announcement of demonetization took another toll on business in the last few months of the year. However, there is a perspective and a strong belief that the situation will change for the better. Understanding the customer has become the need of the hour. Knowing your consumer is now mandatory to a successful business. 2017 will promote evolution and innovation within in the business community.

Vijay Jain: The year 2016 has been quite a challenging year for the jewellery industry in general. With the PAN card rules coming into effect as well as excise duty followed by the process of demonetization, the industry has seen successive change within a short span of time.

Saurabh Gadgil: FY16 was very eventful year. With Demonetization hitting the nation, we are glad that we are at par with the government in clean and safe way of selling and doing business. There was a dip in gold rate but eventually Diwali sales were good and ravishing. Sales peak during Diwali, especially the beginning of the festival.

Ishu Datwani: FY16 has been very disappointing for the Jewellery industry because starting from March, the Jewellery industry was on strike against excise duty which continued till around 15th-20th April. Jewellery stores were all shut during this period and post that also somehow business didn’t pick up at all. October was the only decent month and we were looking at a good revival because the wedding season was coming up. But then the bombshell in the form of Demonetization took place on 8th November and everything went down again. So, it has been quite a disappointing year for the Jewellery industry.  The year has seen negative growth and probably the sales this year is going to set a new precedent, in a way a new beginning for the industry. 

Hardik Kapoor: The FY 2016-17 has been a mix year for the industry mainly due to 2 reasons-

• Traders Strike- This could have been avoided if government would have confirmed regarding GST.

•  Demonetization- The implementation could have been better.

There is still time for FY closing, and demand has already started improving in December. The Jan Feb and March can record growth on YOY basis if remonetization is as what the government is promising.

Till date in the current FY, we as a company have been able to improve our growth and the same trend we are expecting for the closing of the current FY also.

Expectations from the Budget 2017

Sachin Jain: The budget for 2017 will project a more robust credit and banking infrastructure as well as lower interest rates. This will thereby increase the consumer’s spending power promoting a positive outlook across industries.

Vijay Jain: Current demonetization has resulted not only in a contraction of liquidity but also in certain sectors, a contraction of income and an increase in the statutory cost of doing business (both for existing business and more so for the informal sector as they move towards a formal sector). While from a long term perspective, the benefits are immense, in the short term, in the absence of any meaningful announcements in the upcoming budget 2017, we are likely to see a demand contraction on the consumer side. I am hoping that the government will take concrete steps to both stimulate demand as well as increase investments.

Saurabh Gadgil: We are expecting a Consumer friendly budget in 2017 with an Import Duty cut on the way and also awaiting imposition of GST.

Ishu Datwani: We really hope that the GST rate is kept at the same level as the current sales tax rates and there is no further set back to the sentiments by way of changes in Excise rules or Income tax rules. We definitely expect the borrowing cost to come down in the coming months which will be a great relief and improve the bottom line.

Hardik Kapoor: The industry has always been pillar to India’s economy. The government now should take some steps to promote the sector.

•             The Personal income tax exemption will be ideal at Rs. 5 lakhs.

•             Reduction in corporate tax.

•             Reduction in import duty of gold to 5 per cent or less.

•             Increase of hallmarking infrastructure in the country.

•             Effective initiatives to promote innovation, employment generation, and skill development in the industry.

•             Measures to promote gold and diamond exploration and mining that will lead to less dependency on import.

•             GST should be capped at 1 per cent -1.25 per cent

•             No pan requirement for people who make cashless transaction as there would already kyc compliance by the banks for e.g. net banking, debit card, credit card, are already KYC compliant.

Industry projections for the next financial year

 

Sachin Jain: Demonetization has had a strong impact at the beginning of this year constraining both sales and profitability. Jewellery companies will need to actively look at their merchandising mix and integrated marketing strategies. Consumer demands are changing and the right merchandise mix on display with optimal capital allocation to fit the needs of the consumer today will be critical. An analytical approach supported with data and statistics will pave the way for future financial success.

Vijay Jain: In this new financial year, we are therefore expecting to see changes within the industry especially within the unorganized sector. There will be a call for more accountability and stability and therefore jewellery as a whole will witness a renewed outlook from being a viewed safe haven, but rather a smart, and well informed consumer choice. Within the retail segment itself, and according to a recent PricewaterhouseCoopers report we are seeing organized retail already having a penetration of about 8-10 per cent. This will lead to many brands and not just jewellery alone looking at reviewing inventory with a sharp focus on the more accessible price points and designs as well as re-aligning their marketing spends with emphasis on the digital medium.

Saurabh Gadgil: The year looks good with maximum achievement targets and scope.

Ishu Datwani: The future for now looks a tad uncertain till there is further clarity on Government’s stand on luxury items especially gold.  The 1st & 2nd quarter of 2017 does not seem promising as the   Demonetization move has had a spiraling effect on the Jewellery industry. It might take at least 6 to 9 months for things to come back to normalcy. The industry should see normal times post August 2017. However every low phase brings in new opportunities and we are positive of riding this tide and making the most of the opportunities available.

Hardik Kapoor: The future for industry is not merely positive but bullish. The reason to this statement is that in the coming years the domestic gems and jewellery industry is expected to touch 80bn$ . During the same time the industry will also add 3-4 million people to its existing workforce.

The growth in next financial year would definitely support the above numbers. The factors like demographic dividend, rising spending power, good demand from rural areas would play an important role.

Having said about the projections, getting support from the govt at the right time is also important for the industry.

Gem & Jewellery Export Promotion Council (GJEPC), in a representation filed on behalf of the entire gem & jewellery industry, has reiterated that the industry is completely supportive of India’s move towards Goods & Services Tax (GST), and is looking forward to migrating to a GST regime but has sought exemption for GJI export transactions and preferred minimal GST rates for domestic transactions even as the GST Council commenced a crucial meeting to set rates. At present, gems & jewellery exports are effectively zero rated. Hence any element of tax in exports is required to be rebated. As regards VAT, it is typically charged at the rate of 1 per cent on the sale price by almost all the states in India.

In its representation, GJEPC has highlighted the key facts with respect to the economic and social significance of the GJI as follows…

a) The GJI currently offers employment to 4.6 million of our citizens. The GJI offers a unique employment opportunity in the Indian context as it provides employment to millions of skilled workers (Karigars) who are not formally educated and are not readily employable in other sectors. The GJI also provides employment on a cyclical basis to workers who participate in the agricultural sector, for that part of the year in which such workers are not engaged in agriculture. The GJI is also one of the largest employers of woman at various points in the manufacture, distribution and retailing of the products of the GJI. The employment generated by the GJI is not localized to few locations in our Country, but the GJI creates employment opportunities throughout our Country. The GJI thus plays a unique role as an employer in the Indian economy.

(b) The products of the GJI have for long been the preferred instrument of savings, specifically for the lower income group in both rural and urban areas. Jewellery in the form of ‘Streedhan’ and ‘Meher’ have for several centuries defined the concept of security for married women in India. Savings in the form of gold and jewellery, which have an instant encashability, are deeply ingrained elements of our socio economic heritage. 

(c) The GJI is highly exportoriented and a major contributor to the foreign exchange earnings (USD 38.59 billion in FY 2015-16), and, therefore, the Government has declared the sector as a thrust area for export promotion. For instance, the diamonds processed in India account for 85 per cent in volume, 92 per cent in pieces and 65 per cent in value of the total world diamond market. (as stated 94 per cent of India’s production of diamonds are exported. Hence any deviation to levy any tax on loose diamonds would affect very adversely the exports of loose diamonds). To facilitate the growth of export segment of this sector, beneficial tax policies have been formulated, which has fostered growth of the GJI in the global market. For example raw (rough) diamonds have been enjoying exemption from duty and other taxes at import level for decades. This has resulted in India becoming world leader in the field of Diamonds. Such leadership is increasingly under strain from nations like China, Vietnam, Thailand, etc. It is therefore imperative that the GST regime continues to fully support exports of the GJI.

(d) The GJI contributes 6 per cent to 7 per cent to India’s GDP. It is hoped that with introduction of GST at the rates requested, this contribution would increase.

The GJI has, since the ntroduction of Central Excise Duty (‘CED”) in 1944, not been levied to CED, other than for very brief periods of levy, post which also the levy was withdrawn. It was only vide Union Budget 2016-17 that a levy of CED was imposed on articles of jewellery, with the stated motive of transitioning this sector into GST. Even in context of this levy, the Government, reaffirmed its understanding of the sensitivities and nuances of the GJI by introducing several specific provisions and procedures to support the levy of CED. Further, the said levy is applicable only if the taxable turnover of the assessee is in excess of Rs. 10 crores. It is pertinent to note that pre-dominant part of the assessees in the GJI fall below the said limit, and, as a result, the levy of CED is only focused on a limited segment of the trade. Under GST, since the threshold for taxable turnover is Rs. 20 lakhs, the universe of taxpayers within the GJI is likely to increase dramatically. The GJI is therefore predominantly paying indirect tax at an effectiverate of 1 per cent (VAT) on its domestic transactions.

Be the first to comment

Leave a comment

Email Alerts

WhatsApp Alerts