|*Additionally, during pre-Budget interactions with the concerned ministries, industry bodies have also presented a fairly comprehensive set of suggestions regarding their wish list for policy changes.*|%% |*Together these constitute a broad blueprint for the direction in which the industry wishes to evolve. Though still a basic framework, it represents the vision to strengthen the organised and unified segment of jewellers to lead the industry towards a more modern contemporary avatar and in the process keep the new 21st century Indian consumer as committed to jewellery as earlier generations have been.*|%% |*{{Stephen Rego}} discusses the trade’s reactions to the duty hike and hallmarking, and explores the framework for change that the industry leaders have put forward.*|%% There were not too many reasons for cheer as the New Year dawned for the jewellery trade. The last few months of 2011 had seen a dip in sales, as a sharp appreciation in the rupee-dollar exchange rate had seen prices of the yellow metal spiral in the domestic market at a time when they were actually declining in the international arena. The same factor was also impeding diamond sales, which too had been marginally softening globally. There were frowns of worry across the faces of many a jeweller across the country.%% Figures released a few weeks later by the World Gold Council confirmed what empirical observations had indicated. In a report that presented its assessment of the gold market in 2011, the agency noted that during the fourth quarter of the calendar year, China had edged ahead of India in terms of gold consumption. During October-December 2011, while Chinese demand was 190.6 tonnes (up marginally from 190.3 tonnes y-o-y), in India demand for jewellery, and gold bars and coins fell 42% to 173 tonnes during the same period.%% India remained ahead when one considers the full year consumption, having consumed 933 tonnes of the yellow metal compared to 770 tonnes in China. But here too, the news was not necessarily all positive. India’s overall gold consumption was actually down by seven per cent, with jewellery demand declining by 14 per cent and purchase of coins and bars up by five per cent.%% The report noted that a bulk of the annual decrease in demand was on account of the 33 per cent fall witnessed during July-December when prices kept going up. "The rapid rise and fall in the rupee, and resulting domestic gold price swings, had a strong impact on gold buying... as consumers traditionally prefer to wait until gold prices stabilise," WGC said. It was against this background that the government announced two policy measures with a direct bearing on the trade. The first, coinciding with the New Year, was the Cabinet nod for amendments to the BIS Act that would make hallmarking of gold jewellery mandatory. No time frame was defined for implementation, but it was thought that the legislation could come up for implementation as early as during the Budget session. And then in the middle of the month came the announcement of a hike in the import duties of gold, silver and polished diamonds, all with immediate effect.%%

The import duty on gold was increased to two per cent of the value from the earlier flat rate of Rs. 300 per 10 grams and that of silver to six per cent of value from the earlier Rs. 1,500 per kg. Polished diamonds, duty on which had been withdrawn in 2009, would henceforth attract a two per cent levy.%% A report on the Indian economy released a few weeks later by the Economic Advisory Council of the Prime Minister indicated that perhaps more than actual revenue generation, the duty hikes were actually aimed at reducing the high outflow of foreign exchange by making imports slightly more costly.%% Higher gold imports meant the country spent more U.S. dollars, increasing the total import bill and widening the current account deficit.%% C. Rangarajan, chairman of the council, explained the move as part of the government’s attempts to bring down the current account deficit to 2 to 2.5 percent of GDP. The figure was an estimated 3.6 per cent in 2010/11.%% The obvious question was – would these moves place a further burden on the trade and negatively impact consumer demand?%% “No,” says Ashok Minawala, founder chairman, All India Gems & Jewellery Trade Federation (GJF). “Indian consumers in general have adjusted to such increases after a point of time, though in a few parts of the country, the huge spike in retail diamond prices and the cost of gold over the preceding few months, has led to a slowing down in demand.”%% It is a view that is endorsed by many. Analyst Chirag Mehta, a fund manager at Quantum Asset Management Company, said that “the increase in duty is unlikely to impact the demand for gold in any meaningful way, just as the sharp increases in price has not really made much difference in demand in the past.” %% The Gems & Jewellery Committee of Federation of Indian Chambers of Commerce & Industry (FICCI), in a statement, also noted that a quick survey of manufacturers and retailers across the country had revealed that most did not expect their business to be impacted by the increase in duty on gold, silver, platinum and diamonds, because a price hike of this nature is normally absorbed by the consumers. “The impact of the duty hike on consumer demand has not been very significant,” says Bachhraj Bamalwa, chairman, GJF. “When prices of precious metals often fluctuate by as much as one to two per cent on a daily basis, a duty component of two per cent is not unbearable.”%% The GJF is however critical of the government’s move on another score. Says Bamalwa, “It has, however, caused a lot of practical problems for jewellers across the country.”%% Elaborating, he points out that calculating the duty has now become a complicated exercise due to the daily fluctuations in the gold prices and the variations across the country. “For quite some time now, the prices of the yellow metal have displayed a high volatility in the international markets due to a variety of factors. So dollar denominated prices keep changing. Add to that the effect of a constant change in the rupee-dollar rates in currency market, and the difficulty in adjusting the impact of the duty for each sale becomes apparent.”%%

There is another negative aspect to the impact of the duty hike and its related problems – the possible encouragement it will give to smuggling activity. “Unfortunately there are unscrupulous elements in the country,” he says, “and the duty hike has once more given a boost to illegal and undocumented transactions. This is not good for the gem and jewellery industry, which is in the process of moving away from an unorganised past.”%% In the context the GJF also urged the government to restrict the limit of gold/silver that a passenger brings into the country to 1 kg as a proactive measure to stop ‘illegal’ imports. Bamalwa said "We need to stop smuggling of precious metals completely. The government would do well to plug this route."%% The GJF has therefore suggested that the government should revert to a fixed rate of duty, albeit at a higher level than was levied in the past. At the time of going to press, there were indications that the government was favourably inclined in this regard, and the trade is confident that an announcement regarding this will shortly be made.%% Similarly, jewellers have also reacted positively to the government’s proposal on making hallmarking of gold jewellery mandatory. Speaking to the media, Abaran Jewelers CEO Pratap Kamath said, “Hallmarking is absolutely necessary for the Jewellery industry. This has brought about standardisation and has enhanced the trust in the minds of the consumers.”%% C Krishniah Chetty & Sons MD Vinod Hayagriv, also a former chairman of GJF, noted that the association has always supported the need for hallmarking. He said that though buyers may have to pay a little more for a hallmarked ornament, they do not mind it because of the assurance of quality. %% Mehul Choksi, chairman, FICCI Gems & Jewellery Committee, says that mandatory hallmarking is “a positive step that will boost consumer confidence in the jewellery segment and benefit the consumers by providing them with a third party assurance about quality.”%% Adds Prithviraj Kothari, director Riddhi Siddhi Bullion, “Hallmarking is a great move by the government. It will ensure customer satisfaction by purity assurance.”%% However there is equally a unanimous opinion that while mandatory hallmarking is desirable, the government is in no position to actually implement the move. “The ground realities are a problem,” says Bamalwa.%% According to Kothari, “The current need is to increase the hall marking centres at a faster pace so that the implementation is done in no time.”%% Gold jewellery hallmarking was introduced over a decade ago and while it took time to get accepted among the trade, the number of hallmarked jewellers has been growing steadily ever since. As of March 2, there were 9,118 jewellers across the country to whom the BIS had issued hallmarking licences, itself a significant increase compared to the 7,000 that had been registered by late 2009.%% However at present there are only about 170 hallmarking centres across the country that have been granted recognition by the Bureau of Indian Standards (BIS), the body that the government has created to oversee that quality standards are maintained across industries. %% The number of centres is grossly insufficient when compared to the need, aver jewellers. Bamalwa says that there are many Tier II and Tier III cities without hallmarking centres and says that the existing infrastructure is clearly inadequate to face the requirements of a mandatory hallmarking regime. %%

Tanishq Vice-President (Retail and Marketing) Sandeep Kulhalli believes that some of the challenges in implementing the government’s proposal are “infrastructure to hallmark, capacity at manufacturing hubs, quality and efficacy of the assessing centres, lest they succumb to the trade pressure”, while the “impact on input cost, needs to be understood better.”%% Bamalwa also draws attention to another hurdle – the issue of licensing, which found mention in the draft act circulated by the government when it proposed to make hallmarking mandatory in 2008. “None of the other industries for which the BIS has developed standards have a system of licenses, and we do not understand why the jewellery industry was singled out,” he says, adding, “jewellery is a luxury product, and far sighted jewellers are clear that we have to sell a quality product.”%% The GJF, in its pre-Budget memorandum submitted to the government, in fact says that “We recommend making hallmarking of jewellery mandatory, and sharing of the draft bill with GJF for easy implementation.”%% Elaborating on this, Hayagriv says that interaction with the industry is a must. “We will be able to help in making a practical Act with appropriate rules,” he explains, and says that if a draft bill is ready, “the GJF will work with the government to ensure that there are no objections at a later stage.”%% Other sections of the trade have also put forward their own suggestions. Choksi hopes that the government and BIS work in close co-ordination with the trade bodies to ensure smooth implementation.”There should be an appropriate infrastructure developed and suggestions like the creation of ‘Captive Hallmarking Centres’ for large manufacturers should be favourably addressed,” he opines.%% The GJF too has recommended that in-house hallmarking units recognised by BIS should be permitted at advanced plants set up by large manufacturers, rather than them “having to send the jewellery to small hallmarking centres that are unable to handle the load.”%% Kothari, on his part, suggests that “the extra revenue generated from the increased duty on gold could be used by the government for creating new hallmarking centers, as well as for research and development in the mining sector.”%% Another issue on which there is near unanimity across the trade is on the excise duty on ‘branded jewellery’ which was re-introduced last year, though it had been abolished in 2009, a few years after it had first been introduced. The GJF stresses that the “present duty on branded jewellery is inappropriate as it leads to misinterpretation and harassment across the country where jewellers are being force-fitted into payment. We suggest that GST take care of this amount of collection.” Choksi’s view is that, “The levy of excise duty on jewellery should not only be immediately abolished but an ‘Indian brands’ promotion corpus should also be made available to promote Indian jewellery brands in the international market.” He adds, “Gold jewellery is also a form of savings and investments, especially for the rural population and levying an excise duty on savings is not appropriate.”%%

The GJF has recently received a clarification from the government that a localised jewellers mark will not be considered a sign of branding, even if it appears on packaging and other materials. It is expected that this will reduce the harassment that many jewellers across the country had faced for supposed non-payment of the excise duty.%% Another cess that has attracted criticism is the non-uniform application of VAT. “When it was introduced a few years ago, it was understood that the rate would be standard across the country and a step towards a GST regime,” says Bamalwa.%% “While the GST is still awaited, many states have increased the rates for VAT causing problems for the trade in that state,” he adds, stating, “We recommend that uniform VAT rates of 1% be implemented across India and maintain the same rate. %% Large manufacturers too feel that it is high time that jewellery was allowed to move freely across the country. Says Colin Shah, MD Kama Schachter, “A uniform one percent VAT across the country will facilitate the free movement of goods across states help build an efficient distribution system.”%% Opines Choksi, “There is need for hassle free transit of goods between states.” Interestingly, the industry bodies have not stopped at merely presenting their critiques of various government decisions, but have also sought to present alternative visions of the future they see for the industry.%% Hayagriv said, “The industry needs valuable support from the government to transition from its current relatively less organised state to a more organised one. We believe that by working together with the associations and trade bodies, the government can make valuable contributions to its development." The GJF has suggested that part of the collection from the enhanced duties should be ploughed back into the business. “The government should make a provision for allocation of separate budgets for educational, training and development programmes amounting to Rs. 350 crore and a Rs 75 crore budget for promotion of gems and jewellery at the retail level,” says the federation’s pre-Budget memorandum.%%

Bamalwa elaborates, “With the development of a modern segment of the industry and systematic consumer promotions, there is great potential for growth and expansion in the employment generated by the industry.”%% He continues, “Ours is a luxury industry, but the workers and artisans in large parts of the country still have to work in poor and unhygienic conditions. Manufacturing facilities need to be improved and upgraded.”%% Already, most of the large jewellery manufacturer-exporters have set up units for the domestic industry and are supplying their products to the pan-India market. “The standards that they are setting for worker welfare need to spread throughout the industry,” he notes. %% “In this context we have suggested that the government should set aside tracts of land for Gem and Jewellery Parks in different parts of India where good infrastructure can be developed, proper workplaces can be created and other benefits can be provided for the workers,” Bamalwa continues. “These can be hubs for the development of the domestic industry, just as the Special Economic Zones provided a boost to the export sector.”%% Another related aspect is training and education. “Most of the artisans and workers have not received any formal training and we want to develop a proper educational system with training institutes and courses. We have requested the government to allot the funds required to create this infrastructure,” Bamalwa explains. “Training for the sales staff is also the need of the hour, so that the transition to modern forms of retailing takes place smoothly.”%% In India, the gem and jewellery industry goes back many centuries and more than a few of the well known jewellers across the country now trace their heritage back at least a hundred years, if not more. While the industry is clearly a deep rooted one, it is true that it also remained satisfied with traditional, time honoured practices and systems. %% Change however was sweeping through the country, and the industry either had to move with the times, or run the risk of being left behind. The fresh winds blowing through the economy and the retail space, impacted the jewellery industry too, and in the short span of a decade and a half, dramatic changes have been seen. From being a marginal force at the start of the millennium, the organised segment of the trade began to gather strength, and has virtually doubled its share of the industry from about three to four per cent midway through the first decade of this century to about seven to eight per cent now. %% “The GJF has been trying to strengthen this growth in multiple ways,” says Bamalwa. “We have been organising seminars and disseminating knowledge in other ways to try and take this message to the jewellery fraternity across the country.”%%

He continues, “We are doing many things to prepare the members of the trade for this change, and need the support of the government to make some of it a reality.”%% In addition to the various measures proposed to the government in the context of the duty hikes, taxation policies and the implementation of mandatory hallmarking, he also cites the example of the Smart Card scheme which the federation has developed. “With the emergence of a pan-India market, retailers across the country have to stock different types of products. Manufacturers and wholesalers now travel across the length and breadth of India with high value jewellery. At one level this is risky, and having to deal with an insensitive administration and policing mechanism at the local levels enhances the problem,” he explains.%% “So we developed the Smart Card mechanism which would help identify the carrier of valuable consignments as a jeweller engaged in genuine trade,” he continues. “Our programme is in place and if the government accords recognition to it, and even allows it to be linked to the Aadhar UID, one of the big hurdles we face can be overcome.”%% “If the government reacts favourably to the proposals we have put forward, then the size of the organised sector could grow significantly and even reach between 15-20 per cent by the end of the decade,” he concludes.%%

|*Additionally, during pre-Budget interactions with the concerned ministries, industry bodies have also presented a fairly comprehensive set of suggestions regarding their wish list for policy changes.*|%% |*Together these constitute a broad blueprint for the direction in which the industry wishes to evolve. Though still a basic framework, it represents the vision to strengthen the organised and unified segment of jewellers to lead the industry towards a more modern contemporary avatar and in the process keep the new 21st century Indian consumer as committed to jewellery as earlier generations have been.*|%% |*{{Stephen Rego}} discusses the trade’s reactions to the duty hike and hallmarking, and explores the framework for change that the industry leaders have put forward.*|%% There were not too many reasons for cheer as the New Year dawned for the jewellery trade. The last few months of 2011 had seen a dip in sales, as a sharp appreciation in the rupee-dollar exchange rate had seen prices of the yellow metal spiral in the domestic market at a time when they were actually declining in the international arena. The same factor was also impeding diamond sales, which too had been marginally softening globally. There were frowns of worry across the faces of many a jeweller across the country.%% Figures released a few weeks later by the World Gold Council confirmed what empirical observations had indicated. In a report that presented its assessment of the gold market in 2011, the agency noted that during the fourth quarter of the calendar year, China had edged ahead of India in terms of gold consumption. During October-December 2011, while Chinese demand was 190.6 tonnes (up marginally from 190.3 tonnes y-o-y), in India demand for jewellery, and gold bars and coins fell 42% to 173 tonnes during the same period.%% India remained ahead when one considers the full year consumption, having consumed 933 tonnes of the yellow metal compared to 770 tonnes in China. But here too, the news was not necessarily all positive. India’s overall gold consumption was actually down by seven per cent, with jewellery demand declining by 14 per cent and purchase of coins and bars up by five per cent.%% The report noted that a bulk of the annual decrease in demand was on account of the 33 per cent fall witnessed during July-December when prices kept going up. "The rapid rise and fall in the rupee, and resulting domestic gold price swings, had a strong impact on gold buying... as consumers traditionally prefer to wait until gold prices stabilise," WGC said. It was against this background that the government announced two policy measures with a direct bearing on the trade. The first, coinciding with the New Year, was the Cabinet nod for amendments to the BIS Act that would make hallmarking of gold jewellery mandatory. No time frame was defined for implementation, but it was thought that the legislation could come up for implementation as early as during the Budget session. And then in the middle of the month came the announcement of a hike in the import duties of gold, silver and polished diamonds, all with immediate effect.%%

The import duty on gold was increased to two per cent of the value from the earlier flat rate of Rs. 300 per 10 grams and that of silver to six per cent of value from the earlier Rs. 1,500 per kg. Polished diamonds, duty on which had been withdrawn in 2009, would henceforth attract a two per cent levy.%% A report on the Indian economy released a few weeks later by the Economic Advisory Council of the Prime Minister indicated that perhaps more than actual revenue generation, the duty hikes were actually aimed at reducing the high outflow of foreign exchange by making imports slightly more costly.%% Higher gold imports meant the country spent more U.S. dollars, increasing the total import bill and widening the current account deficit.%% C. Rangarajan, chairman of the council, explained the move as part of the government’s attempts to bring down the current account deficit to 2 to 2.5 percent of GDP. The figure was an estimated 3.6 per cent in 2010/11.%% The obvious question was – would these moves place a further burden on the trade and negatively impact consumer demand?%% “No,” says Ashok Minawala, founder chairman, All India Gems & Jewellery Trade Federation (GJF). “Indian consumers in general have adjusted to such increases after a point of time, though in a few parts of the country, the huge spike in retail diamond prices and the cost of gold over the preceding few months, has led to a slowing down in demand.”%% It is a view that is endorsed by many. Analyst Chirag Mehta, a fund manager at Quantum Asset Management Company, said that “the increase in duty is unlikely to impact the demand for gold in any meaningful way, just as the sharp increases in price has not really made much difference in demand in the past.” %% The Gems & Jewellery Committee of Federation of Indian Chambers of Commerce & Industry (FICCI), in a statement, also noted that a quick survey of manufacturers and retailers across the country had revealed that most did not expect their business to be impacted by the increase in duty on gold, silver, platinum and diamonds, because a price hike of this nature is normally absorbed by the consumers. “The impact of the duty hike on consumer demand has not been very significant,” says Bachhraj Bamalwa, chairman, GJF. “When prices of precious metals often fluctuate by as much as one to two per cent on a daily basis, a duty component of two per cent is not unbearable.”%% The GJF is however critical of the government’s move on another score. Says Bamalwa, “It has, however, caused a lot of practical problems for jewellers across the country.”%% Elaborating, he points out that calculating the duty has now become a complicated exercise due to the daily fluctuations in the gold prices and the variations across the country. “For quite some time now, the prices of the yellow metal have displayed a high volatility in the international markets due to a variety of factors. So dollar denominated prices keep changing. Add to that the effect of a constant change in the rupee-dollar rates in currency market, and the difficulty in adjusting the impact of the duty for each sale becomes apparent.”%%

There is another negative aspect to the impact of the duty hike and its related problems – the possible encouragement it will give to smuggling activity. “Unfortunately there are unscrupulous elements in the country,” he says, “and the duty hike has once more given a boost to illegal and undocumented transactions. This is not good for the gem and jewellery industry, which is in the process of moving away from an unorganised past.”%% In the context the GJF also urged the government to restrict the limit of gold/silver that a passenger brings into the country to 1 kg as a proactive measure to stop ‘illegal’ imports. Bamalwa said "We need to stop smuggling of precious metals completely. The government would do well to plug this route."%% The GJF has therefore suggested that the government should revert to a fixed rate of duty, albeit at a higher level than was levied in the past. At the time of going to press, there were indications that the government was favourably inclined in this regard, and the trade is confident that an announcement regarding this will shortly be made.%% Similarly, jewellers have also reacted positively to the government’s proposal on making hallmarking of gold jewellery mandatory. Speaking to the media, Abaran Jewelers CEO Pratap Kamath said, “Hallmarking is absolutely necessary for the Jewellery industry. This has brought about standardisation and has enhanced the trust in the minds of the consumers.”%% C Krishniah Chetty & Sons MD Vinod Hayagriv, also a former chairman of GJF, noted that the association has always supported the need for hallmarking. He said that though buyers may have to pay a little more for a hallmarked ornament, they do not mind it because of the assurance of quality. %% Mehul Choksi, chairman, FICCI Gems & Jewellery Committee, says that mandatory hallmarking is “a positive step that will boost consumer confidence in the jewellery segment and benefit the consumers by providing them with a third party assurance about quality.”%% Adds Prithviraj Kothari, director Riddhi Siddhi Bullion, “Hallmarking is a great move by the government. It will ensure customer satisfaction by purity assurance.”%% However there is equally a unanimous opinion that while mandatory hallmarking is desirable, the government is in no position to actually implement the move. “The ground realities are a problem,” says Bamalwa.%% According to Kothari, “The current need is to increase the hall marking centres at a faster pace so that the implementation is done in no time.”%% Gold jewellery hallmarking was introduced over a decade ago and while it took time to get accepted among the trade, the number of hallmarked jewellers has been growing steadily ever since. As of March 2, there were 9,118 jewellers across the country to whom the BIS had issued hallmarking licences, itself a significant increase compared to the 7,000 that had been registered by late 2009.%% However at present there are only about 170 hallmarking centres across the country that have been granted recognition by the Bureau of Indian Standards (BIS), the body that the government has created to oversee that quality standards are maintained across industries. %% The number of centres is grossly insufficient when compared to the need, aver jewellers. Bamalwa says that there are many Tier II and Tier III cities without hallmarking centres and says that the existing infrastructure is clearly inadequate to face the requirements of a mandatory hallmarking regime. %%

Tanishq Vice-President (Retail and Marketing) Sandeep Kulhalli believes that some of the challenges in implementing the government’s proposal are “infrastructure to hallmark, capacity at manufacturing hubs, quality and efficacy of the assessing centres, lest they succumb to the trade pressure”, while the “impact on input cost, needs to be understood better.”%% Bamalwa also draws attention to another hurdle – the issue of licensing, which found mention in the draft act circulated by the government when it proposed to make hallmarking mandatory in 2008. “None of the other industries for which the BIS has developed standards have a system of licenses, and we do not understand why the jewellery industry was singled out,” he says, adding, “jewellery is a luxury product, and far sighted jewellers are clear that we have to sell a quality product.”%% The GJF, in its pre-Budget memorandum submitted to the government, in fact says that “We recommend making hallmarking of jewellery mandatory, and sharing of the draft bill with GJF for easy implementation.”%% Elaborating on this, Hayagriv says that interaction with the industry is a must. “We will be able to help in making a practical Act with appropriate rules,” he explains, and says that if a draft bill is ready, “the GJF will work with the government to ensure that there are no objections at a later stage.”%% Other sections of the trade have also put forward their own suggestions. Choksi hopes that the government and BIS work in close co-ordination with the trade bodies to ensure smooth implementation.”There should be an appropriate infrastructure developed and suggestions like the creation of ‘Captive Hallmarking Centres’ for large manufacturers should be favourably addressed,” he opines.%% The GJF too has recommended that in-house hallmarking units recognised by BIS should be permitted at advanced plants set up by large manufacturers, rather than them “having to send the jewellery to small hallmarking centres that are unable to handle the load.”%% Kothari, on his part, suggests that “the extra revenue generated from the increased duty on gold could be used by the government for creating new hallmarking centers, as well as for research and development in the mining sector.”%% Another issue on which there is near unanimity across the trade is on the excise duty on ‘branded jewellery’ which was re-introduced last year, though it had been abolished in 2009, a few years after it had first been introduced. The GJF stresses that the “present duty on branded jewellery is inappropriate as it leads to misinterpretation and harassment across the country where jewellers are being force-fitted into payment. We suggest that GST take care of this amount of collection.” Choksi’s view is that, “The levy of excise duty on jewellery should not only be immediately abolished but an ‘Indian brands’ promotion corpus should also be made available to promote Indian jewellery brands in the international market.” He adds, “Gold jewellery is also a form of savings and investments, especially for the rural population and levying an excise duty on savings is not appropriate.”%%

The GJF has recently received a clarification from the government that a localised jewellers mark will not be considered a sign of branding, even if it appears on packaging and other materials. It is expected that this will reduce the harassment that many jewellers across the country had faced for supposed non-payment of the excise duty.%% Another cess that has attracted criticism is the non-uniform application of VAT. “When it was introduced a few years ago, it was understood that the rate would be standard across the country and a step towards a GST regime,” says Bamalwa.%% “While the GST is still awaited, many states have increased the rates for VAT causing problems for the trade in that state,” he adds, stating, “We recommend that uniform VAT rates of 1% be implemented across India and maintain the same rate. %% Large manufacturers too feel that it is high time that jewellery was allowed to move freely across the country. Says Colin Shah, MD Kama Schachter, “A uniform one percent VAT across the country will facilitate the free movement of goods across states help build an efficient distribution system.”%% Opines Choksi, “There is need for hassle free transit of goods between states.” Interestingly, the industry bodies have not stopped at merely presenting their critiques of various government decisions, but have also sought to present alternative visions of the future they see for the industry.%% Hayagriv said, “The industry needs valuable support from the government to transition from its current relatively less organised state to a more organised one. We believe that by working together with the associations and trade bodies, the government can make valuable contributions to its development." The GJF has suggested that part of the collection from the enhanced duties should be ploughed back into the business. “The government should make a provision for allocation of separate budgets for educational, training and development programmes amounting to Rs. 350 crore and a Rs 75 crore budget for promotion of gems and jewellery at the retail level,” says the federation’s pre-Budget memorandum.%%

Bamalwa elaborates, “With the development of a modern segment of the industry and systematic consumer promotions, there is great potential for growth and expansion in the employment generated by the industry.”%% He continues, “Ours is a luxury industry, but the workers and artisans in large parts of the country still have to work in poor and unhygienic conditions. Manufacturing facilities need to be improved and upgraded.”%% Already, most of the large jewellery manufacturer-exporters have set up units for the domestic industry and are supplying their products to the pan-India market. “The standards that they are setting for worker welfare need to spread throughout the industry,” he notes. %% “In this context we have suggested that the government should set aside tracts of land for Gem and Jewellery Parks in different parts of India where good infrastructure can be developed, proper workplaces can be created and other benefits can be provided for the workers,” Bamalwa continues. “These can be hubs for the development of the domestic industry, just as the Special Economic Zones provided a boost to the export sector.”%% Another related aspect is training and education. “Most of the artisans and workers have not received any formal training and we want to develop a proper educational system with training institutes and courses. We have requested the government to allot the funds required to create this infrastructure,” Bamalwa explains. “Training for the sales staff is also the need of the hour, so that the transition to modern forms of retailing takes place smoothly.”%% In India, the gem and jewellery industry goes back many centuries and more than a few of the well known jewellers across the country now trace their heritage back at least a hundred years, if not more. While the industry is clearly a deep rooted one, it is true that it also remained satisfied with traditional, time honoured practices and systems. %% Change however was sweeping through the country, and the industry either had to move with the times, or run the risk of being left behind. The fresh winds blowing through the economy and the retail space, impacted the jewellery industry too, and in the short span of a decade and a half, dramatic changes have been seen. From being a marginal force at the start of the millennium, the organised segment of the trade began to gather strength, and has virtually doubled its share of the industry from about three to four per cent midway through the first decade of this century to about seven to eight per cent now. %% “The GJF has been trying to strengthen this growth in multiple ways,” says Bamalwa. “We have been organising seminars and disseminating knowledge in other ways to try and take this message to the jewellery fraternity across the country.”%%

He continues, “We are doing many things to prepare the members of the trade for this change, and need the support of the government to make some of it a reality.”%% In addition to the various measures proposed to the government in the context of the duty hikes, taxation policies and the implementation of mandatory hallmarking, he also cites the example of the Smart Card scheme which the federation has developed. “With the emergence of a pan-India market, retailers across the country have to stock different types of products. Manufacturers and wholesalers now travel across the length and breadth of India with high value jewellery. At one level this is risky, and having to deal with an insensitive administration and policing mechanism at the local levels enhances the problem,” he explains.%% “So we developed the Smart Card mechanism which would help identify the carrier of valuable consignments as a jeweller engaged in genuine trade,” he continues. “Our programme is in place and if the government accords recognition to it, and even allows it to be linked to the Aadhar UID, one of the big hurdles we face can be overcome.”%% “If the government reacts favourably to the proposals we have put forward, then the size of the organised sector could grow significantly and even reach between 15-20 per cent by the end of the decade,” he concludes.%%

|*Additionally, during pre-Budget interactions with the concerned ministries, industry bodies have also presented a fairly comprehensive set of suggestions regarding their wish list for policy changes.*|%% |*Together these constitute a broad blueprint for the direction in which the industry wishes to evolve. Though still a basic framework, it represents the vision to strengthen the organised and unified segment of jewellers to lead the industry towards a more modern contemporary avatar and in the process keep the new 21st century Indian consumer as committed to jewellery as earlier generations have been.*|%% |*{{Stephen Rego}} discusses the trade’s reactions to the duty hike and hallmarking, and explores the framework for change that the industry leaders have put forward.*|%% There were not too many reasons for cheer as the New Year dawned for the jewellery trade. The last few months of 2011 had seen a dip in sales, as a sharp appreciation in the rupee-dollar exchange rate had seen prices of the yellow metal spiral in the domestic market at a time when they were actually declining in the international arena. The same factor was also impeding diamond sales, which too had been marginally softening globally. There were frowns of worry across the faces of many a jeweller across the country.%% Figures released a few weeks later by the World Gold Council confirmed what empirical observations had indicated. In a report that presented its assessment of the gold market in 2011, the agency noted that during the fourth quarter of the calendar year, China had edged ahead of India in terms of gold consumption. During October-December 2011, while Chinese demand was 190.6 tonnes (up marginally from 190.3 tonnes y-o-y), in India demand for jewellery, and gold bars and coins fell 42% to 173 tonnes during the same period.%% India remained ahead when one considers the full year consumption, having consumed 933 tonnes of the yellow metal compared to 770 tonnes in China. But here too, the news was not necessarily all positive. India’s overall gold consumption was actually down by seven per cent, with jewellery demand declining by 14 per cent and purchase of coins and bars up by five per cent.%% The report noted that a bulk of the annual decrease in demand was on account of the 33 per cent fall witnessed during July-December when prices kept going up. "The rapid rise and fall in the rupee, and resulting domestic gold price swings, had a strong impact on gold buying... as consumers traditionally prefer to wait until gold prices stabilise," WGC said. It was against this background that the government announced two policy measures with a direct bearing on the trade. The first, coinciding with the New Year, was the Cabinet nod for amendments to the BIS Act that would make hallmarking of gold jewellery mandatory. No time frame was defined for implementation, but it was thought that the legislation could come up for implementation as early as during the Budget session. And then in the middle of the month came the announcement of a hike in the import duties of gold, silver and polished diamonds, all with immediate effect.%%

The import duty on gold was increased to two per cent of the value from the earlier flat rate of Rs. 300 per 10 grams and that of silver to six per cent of value from the earlier Rs. 1,500 per kg. Polished diamonds, duty on which had been withdrawn in 2009, would henceforth attract a two per cent levy.%% A report on the Indian economy released a few weeks later by the Economic Advisory Council of the Prime Minister indicated that perhaps more than actual revenue generation, the duty hikes were actually aimed at reducing the high outflow of foreign exchange by making imports slightly more costly.%% Higher gold imports meant the country spent more U.S. dollars, increasing the total import bill and widening the current account deficit.%% C. Rangarajan, chairman of the council, explained the move as part of the government’s attempts to bring down the current account deficit to 2 to 2.5 percent of GDP. The figure was an estimated 3.6 per cent in 2010/11.%% The obvious question was – would these moves place a further burden on the trade and negatively impact consumer demand?%% “No,” says Ashok Minawala, founder chairman, All India Gems & Jewellery Trade Federation (GJF). “Indian consumers in general have adjusted to such increases after a point of time, though in a few parts of the country, the huge spike in retail diamond prices and the cost of gold over the preceding few months, has led to a slowing down in demand.”%% It is a view that is endorsed by many. Analyst Chirag Mehta, a fund manager at Quantum Asset Management Company, said that “the increase in duty is unlikely to impact the demand for gold in any meaningful way, just as the sharp increases in price has not really made much difference in demand in the past.” %% The Gems & Jewellery Committee of Federation of Indian Chambers of Commerce & Industry (FICCI), in a statement, also noted that a quick survey of manufacturers and retailers across the country had revealed that most did not expect their business to be impacted by the increase in duty on gold, silver, platinum and diamonds, because a price hike of this nature is normally absorbed by the consumers. “The impact of the duty hike on consumer demand has not been very significant,” says Bachhraj Bamalwa, chairman, GJF. “When prices of precious metals often fluctuate by as much as one to two per cent on a daily basis, a duty component of two per cent is not unbearable.”%% The GJF is however critical of the government’s move on another score. Says Bamalwa, “It has, however, caused a lot of practical problems for jewellers across the country.”%% Elaborating, he points out that calculating the duty has now become a complicated exercise due to the daily fluctuations in the gold prices and the variations across the country. “For quite some time now, the prices of the yellow metal have displayed a high volatility in the international markets due to a variety of factors. So dollar denominated prices keep changing. Add to that the effect of a constant change in the rupee-dollar rates in currency market, and the difficulty in adjusting the impact of the duty for each sale becomes apparent.”%%

There is another negative aspect to the impact of the duty hike and its related problems – the possible encouragement it will give to smuggling activity. “Unfortunately there are unscrupulous elements in the country,” he says, “and the duty hike has once more given a boost to illegal and undocumented transactions. This is not good for the gem and jewellery industry, which is in the process of moving away from an unorganised past.”%% In the context the GJF also urged the government to restrict the limit of gold/silver that a passenger brings into the country to 1 kg as a proactive measure to stop ‘illegal’ imports. Bamalwa said "We need to stop smuggling of precious metals completely. The government would do well to plug this route."%% The GJF has therefore suggested that the government should revert to a fixed rate of duty, albeit at a higher level than was levied in the past. At the time of going to press, there were indications that the government was favourably inclined in this regard, and the trade is confident that an announcement regarding this will shortly be made.%% Similarly, jewellers have also reacted positively to the government’s proposal on making hallmarking of gold jewellery mandatory. Speaking to the media, Abaran Jewelers CEO Pratap Kamath said, “Hallmarking is absolutely necessary for the Jewellery industry. This has brought about standardisation and has enhanced the trust in the minds of the consumers.”%% C Krishniah Chetty & Sons MD Vinod Hayagriv, also a former chairman of GJF, noted that the association has always supported the need for hallmarking. He said that though buyers may have to pay a little more for a hallmarked ornament, they do not mind it because of the assurance of quality. %% Mehul Choksi, chairman, FICCI Gems & Jewellery Committee, says that mandatory hallmarking is “a positive step that will boost consumer confidence in the jewellery segment and benefit the consumers by providing them with a third party assurance about quality.”%% Adds Prithviraj Kothari, director Riddhi Siddhi Bullion, “Hallmarking is a great move by the government. It will ensure customer satisfaction by purity assurance.”%% However there is equally a unanimous opinion that while mandatory hallmarking is desirable, the government is in no position to actually implement the move. “The ground realities are a problem,” says Bamalwa.%% According to Kothari, “The current need is to increase the hall marking centres at a faster pace so that the implementation is done in no time.”%% Gold jewellery hallmarking was introduced over a decade ago and while it took time to get accepted among the trade, the number of hallmarked jewellers has been growing steadily ever since. As of March 2, there were 9,118 jewellers across the country to whom the BIS had issued hallmarking licences, itself a significant increase compared to the 7,000 that had been registered by late 2009.%% However at present there are only about 170 hallmarking centres across the country that have been granted recognition by the Bureau of Indian Standards (BIS), the body that the government has created to oversee that quality standards are maintained across industries. %% The number of centres is grossly insufficient when compared to the need, aver jewellers. Bamalwa says that there are many Tier II and Tier III cities without hallmarking centres and says that the existing infrastructure is clearly inadequate to face the requirements of a mandatory hallmarking regime. %%

Tanishq Vice-President (Retail and Marketing) Sandeep Kulhalli believes that some of the challenges in implementing the government’s proposal are “infrastructure to hallmark, capacity at manufacturing hubs, quality and efficacy of the assessing centres, lest they succumb to the trade pressure”, while the “impact on input cost, needs to be understood better.”%% Bamalwa also draws attention to another hurdle – the issue of licensing, which found mention in the draft act circulated by the government when it proposed to make hallmarking mandatory in 2008. “None of the other industries for which the BIS has developed standards have a system of licenses, and we do not understand why the jewellery industry was singled out,” he says, adding, “jewellery is a luxury product, and far sighted jewellers are clear that we have to sell a quality product.”%% The GJF, in its pre-Budget memorandum submitted to the government, in fact says that “We recommend making hallmarking of jewellery mandatory, and sharing of the draft bill with GJF for easy implementation.”%% Elaborating on this, Hayagriv says that interaction with the industry is a must. “We will be able to help in making a practical Act with appropriate rules,” he explains, and says that if a draft bill is ready, “the GJF will work with the government to ensure that there are no objections at a later stage.”%% Other sections of the trade have also put forward their own suggestions. Choksi hopes that the government and BIS work in close co-ordination with the trade bodies to ensure smooth implementation.”There should be an appropriate infrastructure developed and suggestions like the creation of ‘Captive Hallmarking Centres’ for large manufacturers should be favourably addressed,” he opines.%% The GJF too has recommended that in-house hallmarking units recognised by BIS should be permitted at advanced plants set up by large manufacturers, rather than them “having to send the jewellery to small hallmarking centres that are unable to handle the load.”%% Kothari, on his part, suggests that “the extra revenue generated from the increased duty on gold could be used by the government for creating new hallmarking centers, as well as for research and development in the mining sector.”%% Another issue on which there is near unanimity across the trade is on the excise duty on ‘branded jewellery’ which was re-introduced last year, though it had been abolished in 2009, a few years after it had first been introduced. The GJF stresses that the “present duty on branded jewellery is inappropriate as it leads to misinterpretation and harassment across the country where jewellers are being force-fitted into payment. We suggest that GST take care of this amount of collection.” Choksi’s view is that, “The levy of excise duty on jewellery should not only be immediately abolished but an ‘Indian brands’ promotion corpus should also be made available to promote Indian jewellery brands in the international market.” He adds, “Gold jewellery is also a form of savings and investments, especially for the rural population and levying an excise duty on savings is not appropriate.”%%

The GJF has recently received a clarification from the government that a localised jewellers mark will not be considered a sign of branding, even if it appears on packaging and other materials. It is expected that this will reduce the harassment that many jewellers across the country had faced for supposed non-payment of the excise duty.%% Another cess that has attracted criticism is the non-uniform application of VAT. “When it was introduced a few years ago, it was understood that the rate would be standard across the country and a step towards a GST regime,” says Bamalwa.%% “While the GST is still awaited, many states have increased the rates for VAT causing problems for the trade in that state,” he adds, stating, “We recommend that uniform VAT rates of 1% be implemented across India and maintain the same rate. %% Large manufacturers too feel that it is high time that jewellery was allowed to move freely across the country. Says Colin Shah, MD Kama Schachter, “A uniform one percent VAT across the country will facilitate the free movement of goods across states help build an efficient distribution system.”%% Opines Choksi, “There is need for hassle free transit of goods between states.” Interestingly, the industry bodies have not stopped at merely presenting their critiques of various government decisions, but have also sought to present alternative visions of the future they see for the industry.%% Hayagriv said, “The industry needs valuable support from the government to transition from its current relatively less organised state to a more organised one. We believe that by working together with the associations and trade bodies, the government can make valuable contributions to its development." The GJF has suggested that part of the collection from the enhanced duties should be ploughed back into the business. “The government should make a provision for allocation of separate budgets for educational, training and development programmes amounting to Rs. 350 crore and a Rs 75 crore budget for promotion of gems and jewellery at the retail level,” says the federation’s pre-Budget memorandum.%%

Bamalwa elaborates, “With the development of a modern segment of the industry and systematic consumer promotions, there is great potential for growth and expansion in the employment generated by the industry.”%% He continues, “Ours is a luxury industry, but the workers and artisans in large parts of the country still have to work in poor and unhygienic conditions. Manufacturing facilities need to be improved and upgraded.”%% Already, most of the large jewellery manufacturer-exporters have set up units for the domestic industry and are supplying their products to the pan-India market. “The standards that they are setting for worker welfare need to spread throughout the industry,” he notes. %% “In this context we have suggested that the government should set aside tracts of land for Gem and Jewellery Parks in different parts of India where good infrastructure can be developed, proper workplaces can be created and other benefits can be provided for the workers,” Bamalwa continues. “These can be hubs for the development of the domestic industry, just as the Special Economic Zones provided a boost to the export sector.”%% Another related aspect is training and education. “Most of the artisans and workers have not received any formal training and we want to develop a proper educational system with training institutes and courses. We have requested the government to allot the funds required to create this infrastructure,” Bamalwa explains. “Training for the sales staff is also the need of the hour, so that the transition to modern forms of retailing takes place smoothly.”%% In India, the gem and jewellery industry goes back many centuries and more than a few of the well known jewellers across the country now trace their heritage back at least a hundred years, if not more. While the industry is clearly a deep rooted one, it is true that it also remained satisfied with traditional, time honoured practices and systems. %% Change however was sweeping through the country, and the industry either had to move with the times, or run the risk of being left behind. The fresh winds blowing through the economy and the retail space, impacted the jewellery industry too, and in the short span of a decade and a half, dramatic changes have been seen. From being a marginal force at the start of the millennium, the organised segment of the trade began to gather strength, and has virtually doubled its share of the industry from about three to four per cent midway through the first decade of this century to about seven to eight per cent now. %% “The GJF has been trying to strengthen this growth in multiple ways,” says Bamalwa. “We have been organising seminars and disseminating knowledge in other ways to try and take this message to the jewellery fraternity across the country.”%%

He continues, “We are doing many things to prepare the members of the trade for this change, and need the support of the government to make some of it a reality.”%% In addition to the various measures proposed to the government in the context of the duty hikes, taxation policies and the implementation of mandatory hallmarking, he also cites the example of the Smart Card scheme which the federation has developed. “With the emergence of a pan-India market, retailers across the country have to stock different types of products. Manufacturers and wholesalers now travel across the length and breadth of India with high value jewellery. At one level this is risky, and having to deal with an insensitive administration and policing mechanism at the local levels enhances the problem,” he explains.%% “So we developed the Smart Card mechanism which would help identify the carrier of valuable consignments as a jeweller engaged in genuine trade,” he continues. “Our programme is in place and if the government accords recognition to it, and even allows it to be linked to the Aadhar UID, one of the big hurdles we face can be overcome.”%% “If the government reacts favourably to the proposals we have put forward, then the size of the organised sector could grow significantly and even reach between 15-20 per cent by the end of the decade,” he concludes.%%