A reduced import duty will make gold smuggling less attractive and will eventually drive the illegal gold out of the markets.
India needs a robust gold policy which will rationalise gold import duty to curb gold smuggling, boost exports of gems and jewellery and empower organised jewellery retail to capture the domestic gold jewellery demand spectrum with ethically sourced gold, says M.P. Ahammed, founder and chairman, Malabar Gold & Diamonds, in an exclusive interview.
1. Jewellery business in India has come a long way. Earlier, the space was dominated by smaller players and now the organized retailers are fast gaining market share. How do you assess the situation?
The biggest beneficiary of this transformation is the consumer. Earlier, purity and quality of gold wereserious concerns. Now, the organized retailers maintain better quality for their product offerings. Along with the improved quality standards, additional benefits such as 100% buyback guarantee, lifetime free maintenance and free insurance cover have come into effect. Now, the retail chains are spreading their retail footprints across the world. Globally, we are much more integrated today. That gives enhanced value-led services to the consumers anywhere in the world. We have 162 stores in India, which takes tally to 301 stores across the globe. We have introduced the ‘one India, one gold rate’ scheme in India though which we sell gold jewellery at uniform price at our showrooms across the country. As the concept of 'one India one tax country' has been implemented through GST in India, why can’t we have a uniform gold price across the country? Uniform gold rate is actually in the best interest of a customer. We are committed to protect the rights of customers and the launch of ‘one India, one gold rate ’ initiative reflects that commitment. We are hopeful that through the collective efforts of the state governments and the jewellery associations, price parity in gold will be implemented in other states as well in days to come. The consumers will mainly benefit from it. All in all, the organized players are serving the customers much better than the way local jewellers served their customers in the earlier times. ??
Above all, Indian art and designs are acknowledged globally for superior craftsmanship. Given our centuries-old tradition and expertise in jewellery making, Indian retailers have the potential to become global brands banking on originality and aspirational value.
2. India is the second-largest gold consumer in the world. There are stringent rules to curb imports but the domestic demand is increasing every year. Do you see any advantage in liberalizing gold import?
Yes, of course. Liberalizing imports will boost organised domestic jewellery retail business. However, the government has various concerns to address such as the widening current account deficit and rupee depreciation. I think import duty reduction will act as a growth multiplier for the gems and jewellery industry as it will boost growth in jewellery exports and drive up organised jewellery retail sales, which will eventually boost government revenue collections. It is important to note that in countries like the US, UK, China, Singapore, Malaysia and GCC countries, gold imports don't attract any duty, thus disincentivising illegal transactions on gold.
The domestic gold demand especially from rural India is robust and rationalising gold import duty and standardising domestic gold price will further increase consumption. And it will have a multiplier effect in the economy -- higher GST collection, more jobs and increased household savings.
Another serious trade concern is gold smuggling which is being fuelled by higher gold import. In India, 15% import duty, 3% GST and other charges are levied on gold. Effective tax rate of nearly 18% makes smuggled gold cheaper by Rs 250-300 per gram. Gold smuggling hurts the industry as well as the government. According to unofficial estimates, around 4,000 tonne of gold is smuggled into the country annually. So, the extent of loss to the exchequer because of gold smuggling is not difficult to estimate. More importantly, the illicit earnings from gold smuggling are used to finance illegal activities like drug trafficking, human rights violations and terrorist activities.???
The latest data indicate that the gold import is falling. In 2022, the gold import was 706 tonne and in 2021, the country imported 1068 tonne of gold. In December 2022, there was decrease of 79% in gold import. However, fall in import doesn't indicate gold demand slowdown. It implies that smuggled gold is meeting a sizeable share of the domestic gold demand.
If the governmentcan curbgold smuggling and introduces a transparent and structured system to record every transaction, it will put the country firmly on a growth track and pave the way for India to achieve the goal of a $5-trillion economy.
3. What are your (the jewellery industry’s) expectations from the upcoming Union Budget?
There are a few concerns that the government needs to address on an urgent basis. As I mentioned, the Union government should rationalize duties and taxes on gold.?Higher import duty on gold is a major worry for the jewellery retailers. The higher duty encourages large scale duty evasion and incentivises gold smuggling. Therefore, the jewellers from the organised segment end up losing their competitive edge to a section of jewellers that use smuggled gold to manufacture jewellery. The jewellery manufactured with smuggled gold makes it to the retail market with fake hallmarking. This parallel grey market not only prevents the growth of organised retailers and adversely impact customer confidence in the jewellery category but also leads to huge revenue loss for the government. The government needs to take note of this. So, we expect the Union Budget 2023-24 to propose a reduction in gold import duty and introduce a digital monitoring system to track movements of gold in the supply chain.
A reduced import duty will make gold smuggling less attractive and will eventually drive the illegal gold out of the markets. Gold sourced through legal channels leads to quality standardisation and trade transparency.
In addition, we need more export incentives from the government to compete efficiently against leading jewellery markets like UAE, Switzerland and Hong Kong and further enhance the country's share in global jewellery exports. India is currently in the sixth position in terms of global jewellery export. We have the capability to become the jewellery manufacturing hub of the world. We must focus on the idea of ‘Make in India, Market to the World’. The sector achieved $39 billion in exports in 2021 -22. This fiscal year, it is all set to touch $45 billion. ??
4. If there is a global recession, how will it affect the jewellery exports?
I think the global recession could be a temporary phase. Higher interest rate regime is a bit challenging but as far as India is concerned, gold is still one of the preferred investment options, especially in rural households. People and the governments all over the world treat gold as a safe haven asset. Therefore, the safe haven status of gold is likely to offset recessionary impact.
5. The Indian economy is estimated to grow 7% this fiscal year and our domestic market is resilient. What will be the growth rate of the gems and jewellery industry this year? How do you benefit from this?
A resilient domestic market will definitely translate into accelerated business momentum -- higher volume-based sales and increased revenue. We are confident about the India growth story which will generate employment and create new customers for gold especially from the young generation. This year, along with our global expansion plans, we are set to expand to all states of the country. We'll also set up jewellery manufacturing units in all the key manufacturing hubs of the country.It is a proven fact that whenever the rural economy does well, the demand for gold rises. Even if there is a slowdown in exports, robust domestic business will make up for that.
Source: The Economic Times