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These are taxing times for the jewellery industry. Nearly 300,000 jewellery retailers, hundreds of thousands of wholesalers and around 1 crore artisans in India have been on strike since March 17th because of the recently proposed budgetary taxes by the central government. The strike has entered the

19th day at the time of going to press and there has still been no relief offered by the government. But for now, the confidence of the striking jewellers has been bolstered as anti-corruption crusader Anna Hazare, who has promised to write to the finance minister Pranab Mukherjee on behalf of the aggrieved jewellers, and has also asked the industry members to hold peaceful dharnas and sing bhajans outside the homes of members of parliament in different states. The jewellers have planned a massive rally on April 7 in Mumbai.

Shanoo Bijlani and Regan Luis gauge the mood of the industry.Regan Luis gauge the mood of the industry.Regan Luis

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AssAultCripplesindustryAnna Hazare Lends Support to Jewellers’ Stir

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he ongoing pan-India

jewellers’ agitation

which began on March 17th against the ‘draconian’ taxes has

paralysed the industry, and robbed over a crore artisans of their daily wages. The strike, which was already 19 days old at the time of going to press, has resulted in a loss of roughly R1,000 crore per day for the gem and jewellery industry, while the central government has been losing around R70 crore revenue per day. Though the central government has paid lip service about rolling back the excise duty, there is no solid backing to its claim and no sense of urgency to resolve the conflict. As of now, there is no end in sight, yet.

The industry, which has been battling with a dip in demand caused by the escalating price of gold, is saddled with the added burden of a hike in customs import duty, the newly imposed excise

duty on non-branded jewellery, and consumer taxes on jewellery purchases over R200,000. The industry sees this move as regressive and feels that if there are no rollbacks on duties – especially excise – this will be the death-knell for the trade. The stalemate continues as neither the jewellers who are willing to bear the losses because of the strike nor the government is refusing to give in.

Nearly 1 crore artisans, who make handcrafted jewellery, are up in arms against the excise duty on unbranded jewellery. These daily wage earners are currently jobless, and worried about where there next meal will come from, but they too are adamant and are willingly supporting the jewellery industry. The government needs to get its act together or else the results can be disastrous. At a recent protest meet by several groups of retailers, wholesalers and goldsmiths in Mumbai, it was declared that the industry will not relent and will go on an indefinite strike if – especially the excise duty – is not fully waived.

The unrest has intensified throughout India. Demonstrations have been staged in 300 cities including Mumbai’s Zaveri Bazaar, Uttar Pradesh, Delhi, Chandigarh, Jaipur, Ambala, Saurashtra, Ahmedabad and many other cities. There have been instances where jewellers have been lathi-charged in Mumbai, and traders in Ghaziabad have taken law into their own hands and reportedly blocked trains. Some others have resorted to torch rallies and hunger strikes.

The agitations are being carried out by local associations and jewellers, who are united in purpose but lack a unified voice to represent their case to the central government. Many are appealing directly to state governments and opposition parties to gain support for their cause. For its part, the All India Gem and Jewellery Trade Federation (GJF), a national body of retailers, is playing a leading role in representing the case of the trade. The bandh has also received backing from the diamond industry and the Gem and Jewellery Export Promotion Council. Ah

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Jewellers in Ahmedabad were out on the streets in full strength.

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Trouble comes in threesThe retailers have shuttered down their establishments indefinitely and have been protesting against the ‘draconian’ excise duty; and consumer tax. Let us examine what is this agitation all about? There are three duties that will hit the industry and consumers – customs, excise, and consumer tax.

Excise Duty: How much: One percent excise duty will be levied on unbranded jewellery, thus bringing it on par with branded jewellery. At the current prices of gold of approximately R27,000 per 10 grams, the duty payable works out to a nominal amount of about R84 per 10 grams.

Government’s reasoning: A 1% excise duty was imposed on precious metal jewellery – but only on goods manufactured or sold under a brand name. There were several interpretations of the term “branded” jewellery, so in order to streamline the levy, its scope has been altered to include both branded and unbranded jewellery.

The problem: Manufacturers and jewellers fear that this will increase their paperwork and they will have to hire additional staff to maintain proper records of the transaction and movement of goods. However, the unbranded jewellery sector is not organised and the karigars are mostly uneducated and therefore incapable of maintaining the ledgers.

Any lapse or a typographical error can be classified as a non-bailable offence that can put the offender behind bars for up to seven years.

Jewellers argue that excise duty can only be levied on mass manufactured or machine-made goods that are alike. Unbranded jewellery is handmade and therefore each piece differs from the other.

Jewellers allege that excise department officials can enter their work premises or homes for checking and this would be nothing short of mental harassment, which is reminiscent of the ‘Inspector Raj’ during the Gold Control Act.

Demand: Complete rollback of excise duty on unbranded jewellery.

Customs Import Duty: How much: Duty on gold has been upped from 2% to 4%.

Government’s reasoning: Gold is considered to be one of the main reasons for India’s current account deficit which is estimated at $56 billion. Of this, gold imports account for a massive 82% or $45 billion. The current account deficit occurs when imports of a country exceed exports. According to finance minister Pranab Mukherjee, Indians are paying for this gold with “precious foreign exchange”.

The problem: This is the second time the central government has raised customs duty on gold this year. Only in January 2012, the duties were increased from 1% to 2%. And now the duties have doubled in less than two months.

The hike in duties will impact imports by 30%, and will also lead to a dramatic reduction in jewellery exports, particularly the diamond-studded gold jewellery category.

The trade also warns that this move will lead to a rise in gold being smuggled into the country.

Consumers are already thinking twice before purchasing gold and the 4% hike will act as a deterrent.

Investors will shy away from gold and look to other options of investments. But that will hit the jewellery industry hard. For a country that is famous for its jewellery craft since ages, this kind of levy will only further suffocate the industry, and lead to its premature death.

Demand: Jewellers want the duty to be maintained at 2%.

Consumer Tax:How much: Consumers will have to pay 1% value-added tax and produce their Permanent Account Number (PAN) cards on jewellery purchases of over R2 lakh.

Government’s reasoning: Abolish illegal transactions, money laundering and black money.

The problem: This will have a negative impact on the jewellery sector, and force retailers to either under-invoice or split bills.

Consumers may want to go to a jeweller who is willing to take the risk and accept cash.

Jewellers feel that given the steep gold prices, a consumer will not be able to buy even a mangalsutra and a ring (must-haves for a bride) for R2 lakh. So, to buy even the basics, a consumer will have to spend an extra 1%.

Demand: Abolish or roll back this provision fully.

Shutters down in Mumbai.

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One step forward, two steps backMay be the government is justified in controlling the deficit and black money, and in thinking that importing gold is leaching the country’s foreign exchange. But isn’t that a myopic view? Isn’t it missing the woods for the trees?

The gem and jewellery industry is an important sector that preserves the ancient crafts of jewellery making found nowhere else on earth. It employs crores of artisans and goldsmiths, and accounts for more than 17% of India’s foreign exchange.

By imposing such tough taxation laws, is the government putting an end to the jewellery tradition in the country?

Also, the burden of taxes will ultimately fall on consumers, who are already battling with inflation in almost all other areas. It is

Rajiv jainchairman, GJEPC

The roll back of excise duty on

jewellery is the demand of the day put across by all jewellers in the country. it’s our apprehension as an industry that imposition of excise and increase of import duty on gold to 4% may lead to unscrupulous state of affairs and increased probabilities of trafficking of gold into the country through illegal channels. We feel that introduction of excise is not necessary at this point of time as it was announced at the Union Budget by the finance minister that goods and services tax (GST) will be introduced in august 2012 and the excise duty imposed can be merged with GST.

KUmaR jainvice president of Mumbai Jewellers’ Association

jewellers will not be able to bear the

burden of these additional taxes and will simply pass it on to the consumer. As it is, sales have dipped because of increasing gold rates, and these charges will kill the industry completely.

You are giving rise to a parallel economy and gold smuggling. Consumers will prefer going to such people who sell (cheaper) gold in the black market, and retailers who are doing transparent business will suffer losses, while the government too will stand to lose out on any tax revenue. in a year, there are four major jewellery buying occasions in india – Dussera, Dhanteras, Akshaya Tritiya and Gudi Padva. We have already lost out on one major festival, Gudi Padva, which coincided with the strike on March 23. I estimate on an average, jewellery and coin sales in mumbai are around R750 crore on that day.

avinaSh PahUjadirector of marketing and operations, Oro

We object the hike in excise

duty and taxes on gems and jewellery products proposed in the Budget. This move by the government is not pro-business and will have serious implications for the industry. We protest the implementation of excise on all jewellery and doubling of import duty on gold. india also has a Free Trade agreement with Thailand, hence we can import bullion and jewellery from Thailand at a rate of 1%, which will be largely cheaper than the proposed new taxes. This will create a major disparity in the market.

estimated that if there are no rollbacks now, the consumer may end up paying between 5% and 7% more on each jewellery item.

Jewellers and trade bodies are hopeful that the government may ultimately relent and propose a partial rollback on some duties and abolish excise duty altogether on unbranded jewellery. The GJF issued a statement announcing that the tax research unit of the ministry of finance issued a letter promising that “excise officials shall be instructed not to take any coercive measures to compel any jeweller to register for excise and allow them to peacefully open and start their businesses without any interference of the excise department.” But the GJF said that it would continue to pursue the rollback demands of the industry with the government.

Industry refuses to budge The belligerent mood among traders cannot be brushed off so easily. They are facing heavy losses because the trade is closed; also, there is a huge question that dangles like a sword over their heads: what if the government does not budge? What will be the line of action taken then by these protestors? Will they be able to sustain losses and stay on strike indefinitely?

These are some questions Solitaire asked some key industry figures at a protest meet in Mumbai.

Vinod Vadala, president of Mumbai Wholesale Gold Jewellers Association,

The man in the hot seat, excise head S.K. Goel and senior officials of the board deliberating on the post-Budget issues with trade and industry, in New Delhi on March 23, 2012.

Pranab Mukherjee wipes the smiles off jewellers’ faces with the wave of his hand.

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Kalidas sinha Roysecretary of the Bengali Swarna Shilpi Kalyan Sangha, an association of goldsmiths in Zaveri Bazaar, Mumbai

Even though all the karigars live on

daily wages, they are brave enough to support the industry. They have been on strike since the budget was announced. i just hope the issue gets resolved soon, i worry for them.

a jEwEllERy REsEaRch analysTwho did not wish to be named, said,

“The 1% VaT on jewellery worth over R2 lakh is an attempt to control the use of black money for jewellery purchases, and to me this is a bigger negative as compared to excise duty for branded jewellers.” Referring to the proposed increase in customs import duties, he noted, “This may lead to an increase in illicit imports, and that is a big worry.”

colin shahmanaging director and CEO, Kama Schachter

The recent increase on the import duty

of gold will have a negative impact on the industry. since the last two-three years, the industry has become official in its approach due to the low duty regime. Therefore, now considering that there is a large market for gold mainly for investment purposes, many people including farmers, save their money in the form of gold bars or medallions. with a rise in the import duty, it will again lead to cash transactions in the trade, which will negatively impact the sector. additionally, the 4% customs duty on gold will also encourage malpractices or smuggling of gold.

COVERSTORY

informed that 60 groups of manufacturers, wholesalers, and retailers in Mumbai had joined the bandh, and 12 groups of karigars, too, were supporting the move. “We are not against paying taxes. But we are vehemently against the imposition of excise duty. Most jewellery workshops are unorganised and the workers are not capable of keeping the ledgers in order or tracking the movement of goods. Since it is handcrafted jewellery, no two items are alike. Excise duty will unnecessarily increase the paperwork and ‘Inspector Raj’ will be back again. As it is, the government will earn a lot on customs duty as revenues will jump from R2,500 crore to R10,000 crore.”

Gold-buying is an Indian tradition, said Himmatlal Jain of Ratnmani Jewellers, Mumbai. “A common man who is unable to buy property, a car, or any other luxury item, invests in gold. The consumer buys 1 gm or 2 gms of gold on important or festive occasions. Gold is seen as a safe haven for unpredictable or tough times. Gold is also liquid; many in India don’t have bank accounts, they save in the form of gold. It appreciates with time, and helps fulfil the dreams of the common man. By introducing these harsh measures, government has hurt the common man. We are totally against it. We want a rollback and nothing else.”

Mohit Kamboj, chairman and managing director of KBJ Group and director of Bombay Bullion Association, said, “Although different states are

organising rallies and protests, we all are speaking in one voice. We are not against paying taxes. But we will definitely put our foot down against ‘Inspector Raj’. We will not relent or compromise – especially on the issue of excise. We do not want the excise department to meddle with our affairs. We will not compromise. We will wait and watch.”

Puran Doshi of Mohanlal Puranchand & Sons Jewellers, and committee member of Mumbai Wholesale Gold Jewellers Association, explained, “The question is what difference is 0.30% going to make to us when we are ready to pay 4% import duty? What we need to consider is that more than 1 crore artisans involved in the trade are not so educated. Are they well-versed with the accountancy system? They are not. Jewellery artisans start training themselves in their teens, and are engaged in making handcrafted jewellery and promoting an art form that is 5,000 years old. The art is recognised by the entire world, but our own government is turning a blind eye to their problems. Artisans are not supported by the government in terms of training or subsidy.”

Doshi said that if excise become a reality, then the official can visit the workshop and homes at any time. “During the days of the Gold Control Act, we were given a chance to explain our technical mistakes. God forbid, if today there is a typo or a mistake in the ledger which the karigar or the owner

Although different states are organising rallies and protests, we all are speaking in one voice. We are not against paying taxes. But we will definitely put our foot down against ‘Inspector Raj’.”

Karigars have been the hardest hit segment due to the strike.

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Vinod Hayagriv, immediate past chairman, GJF, and managing director of C. Krishniah Chetty & Sons, Bangalore

The government does not seem willing to roll back the recent hikes in customs, excise and retail taxes proposed in the Budget. How long do you think the industry can continue the strike?The government is looking into our representations. We are

given to believe that the C2 lakh VAT rule will be amended. The customs duty will be reduced, and the excise duty will be modified to suit our industry or rolled back. We are pressing for a rollback.

Is the industry demanding a complete rollback of the recent levies, or are you okay with partial rollbacks? If yes, please specify each item in detail.Our demand is to fully rollback at this stage.

What is the estimated daily loss in terms of revenue to the industry as a result of the jewellers’ strike? How much revenue is the government losing per day?The loss is estimated to be about C3,500 crore for the period of 12 days. Loss of revenue to the government is estimated to be about C100 crore.

The 4% customs duty on gold is a planned move by the government to curtail imports and reduce loss of foreign exchange. What is your view on this?I believe that the effective Indian price of gold will be 6% higher than the international price, and this is too big a difference. However, I guess there is a genuine problem of balance of payments. The more basic problem is the poor manufacturing and export base of this country. What we need is a robust plan for skill enhancement and better technology to create better export earnings. That will improve the situation for the government.

Plus, the pure investment imports, including sale of gold bars and coins by banking institutions, must be stopped. And all pure investment options such as exchange traded funds (ETFs) and institutional gold investing curbs will reduce the import bill.

The jewellery sector must not be restricted as it is a direct contributor to the economy on various fronts.

Jewellers feel that the proposed collection of excise duty is a logistical nightmare and may result in harassment from officials. Your comments.Yes. For the bulk of the trade, extra accounting issues will present problems. However, in reality and over time, benefits will accrue as businesses will be better managed and compliant businesses will flourish. Structured working helps growth.

The GJF had proposed raising the PAN card requirement during purchase to R25 lakh, but this was reduced to R2 lakh. What are the implications of this move?This has very severe implications. This will have to be rolled back.

Most jewellery artisans are daily wage earners. How is the strike affecting them and are jewellers looking after their workers’ interests and basic needs for now?The workers are being affected severely. We have highlighted this to the government, which must be sensitive to this issue.

Is there a danger that all these levies will encourage a parallel economy and lead to illegal gold trading?Yes. Unfortunately, the government is short-sighted. Knee-jerk decisions destroy businesses.

Given the current situation, what do you see as the future of the jewellery industry in India?The government is acting on some ill-advised decisions. It needs a more structured plan for growth, and downsizing is not the answer. Hope is alive as long as there are constructive, consultative planned decisions. The GJF will help where it can.

cannot explain, then the draconian law can put you in jail. How can you justify a 7-year imprisonment for a small flaw in the books?” Doshi feared.

Role of goldMay be the government is right in balancing out its current account deficit. May be it views gold as an item that is not productive and doesn’t earn income? But the government’s decision to reduce gold imports is bound to hit the jewellery trade.

Extra taxes, escalating prices of gold will slowly but surely ensure that many jewellers will go out of business.

In India, buying gold or gold jewellery is all about respecting age-old traditions, religious customs and social norms. Myths and customs impel us to buy gold. There are at least four important festivals – Dhanteras, Akshaya Tritiya, Gudi Padva, and Diwali – that are jewellery-buying occasions. It is believed that if one buys even a small piece of gold on these festive days, one’s coffers

will remain full all throughout the year. The second and the most important

sales driver in India are the two wedding seasons. It is estimated that bridal jewellery accounts for almost 70% of domestic jewellery sales.

By making gold dearer, is the government making it an inaccessible form of investment for the Indian consumer? Is it trying to influence the jewellery purchasing habits of Indians that have remained unchanged for millennia?

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COVERSTORY

Anil Talwar, co-chairman FICCI and member of the governing board of the GJF:

How is the mood of retailers in the north? The entire north India has been shut from March 17 and is agitating in different ways to show its displeasure to the finance minister. Jewellers here are very angry and will be on an indefinite strike till the excise and the PAN card requirement on purchases of more than C2 lakh is fully taken

back. The industry is not ready to even think of opening the shops. Peace marches are being held every day in Punjab, Haryana, Himachal Pradesh, Chandigarh and Delhi. Some jewellers are on hunger strike, too.

What are the overall ramifications of recent tax proposals? Jewellers are objecting to all the duties proposed in the Budget. But I think the increase in customs duty to 4% is still bearable. If raised any further in the future, it would give rise once again to gold being smuggled into India. The greater the disparity between the local and international markets, more the chances of smuggling starting all over again.

The second issue is service tax on labour charges paid to karigars. There was a very strong case for saving this beautiful art of jewellery-making in India by keeping it out of the ambit of service tax.

The excise needs to be rolled back. We do not want any excise duty on unbranded jewellery.

Do you think that by imposing stiff customs duties the government will achieve its goal of downsizing gold imports?No doubt we spend a lot of precious dollars on gold, but on the other hand, the government should look at the gem and jewellery segment in its totality. The industry is a leading export revenue earner, and India is the world’s biggest centre for diamond manufacturing. Millions of people are employed by the industry, and gold is only a small part of it.

Do you think the PAN card requirement for purchases above R2 lakh is a practical move?Not at all. In fact even a figure of C5 lakh is too little. It would encourage jewellers to under-bill or split bills or worse still the entire sale may go unrecorded, and the government will gain nothing. Our politicians need to take a more realistic approach.

Under the present circumstances I do not see a very bright future for the jewellery industry in India. All these levies would kill an industry which employs millions. n

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Jewellers are in no mood to relent.