Policy Changes Needed To Boost The Jewellery Industry

21/01/2015 8:11 AM IST | Updated 15/07/2016 8:24 AM IST

At the outset, let me start by congratulating the Union Government for the abolition of the 80:20 rule under which 20 % of the gold imported had to be exported. This created supply constraints for gold in the domestic market and led to an unorganised market in the country. Organised players thus had to not only contend with the restrictions of the 80:20 rule but also the unorganised market, which led to a sharp erosion in margins.

The government must now take the logical next step and remove the 10% import duty on gold. These restrictions were introduced in response to India's current account deficit touching 4.7% of the GDP in FY 13. This deficit had subsequently fallen to 1.7% of the GDP in FY 14. The time is right for removing the pending restrictions on gold as global prices of crude too have softened. This will not only impact the current account positively but also not stoke inflation. This is on the domestic side.

On the export front too, the government needs to restore/extend certain tax benefits. Let me set the context for this. Gems and jewellery have traditionally been among the highest contributors to India's export earnings. It is in the interest of the country as a whole that exports from this sector is encouraged.

We believe that export income should be made tax free or at least the tax exemption on exports from EPZs should be extended to 20 years from the present 10 years. At present such units enjoy 100% Income Tax Exemption under Section 10AA of the Income Tax Act, 1961 for first five years, 50% for the next five years, and for next five years 50% of the profit if such profit is reinvested to the SEZ units. Now the problem is that since the incentive is not very strong after 10 years, many exporters shut down operations leading to loss of foreign exchange. Also gems and jewellery exporters operate on thin margins. The tax burden shrinks these margins even further. If the tax exemption is extended/done away with, the money that can be reinvested in the business or distributed as dividends to shareholders.

There is another difficult situation with respect to SEZs. The original policy envisaged that units not pay taxes for 10 years. This policy was, however, changed and minimum alternate tax of 18.5 % imposed. Many companies that had made investments on the premise of a tax holiday have now seen their profitability impacted.

The prime minister has unveiled a 'Make in India' initiative and this initiative clearly has the support of the entire industry. For this dream to be achieved the industry needs skill development schools to develop craft making. There is an acute lack of skilled workforce in this sector and the industry needs skill development schools to develop craft making, carving, as well as for interfacing with customers. There has to be a public-private partnership to develop such educational institutions.

Clearly, the government as well as the industry have to work together in forging a partnership that boost the prospects of the industry in India as well as abroad.


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