New Delhi, May 13 -- The Gem & Jewellery Export Promotion Council (GJEPC) on Wednesday said raising gold import duty does not curb imports but inflates prices, and urged the government to hold talks with industry stakeholders for sustainable solutions.
"Hiking import duties rarely curbs gold imports, it merely inflates prices. Despite gold prices doubling recently, imports have not declined proportionally," the council said in a statement.
GJEPC said higher duties fuel smuggling and raise export costs, while exporters now face bank guarantees of Rs 28-30 lakh per kg of duty-free gold sourced from Nominated Agencies, severely blocking working capital.
The most severe impact would be on MSME manufacturers, who account for 80 per cent of GJEPC's membership and are facing a "critical liquidity crunch," it said.
The government on Tuesday raised the basic customs duty on gold to 10 per cent from 5 per cent and the Agriculture Infrastructure and Development Cess to 5 per cent from 1 per cent.
Acknowledging the government's decision, GJEPC said it had convened a meeting with major retailers and manufacturers and written to Prime Minister Narendra Modi outlining measures to curb gold imports.
These include promoting lower-caratage jewellery such as 18-karat and 14-karat to reduce imports by 20-30 per cent, encouraging old-gold exchange programmes, reviving the Gold Monetisation Scheme to tap India's estimated 25,000-tonne household gold stock, discouraging investment demand in bars, billets and coins -- which account for 20-30 per cent of total imports -- and providing special incentives for jewellery exporters.
The council said it is separately submitting a detailed paper on revitalising the Gold Monetisation Scheme to the government. "GJEPC urges the government to engage in dialogue for sustainable solutions that align fiscal goals with export growth," it said.
Meanwhile, jewellers and industry leaders said the hike in import duty on gold and silver could impact jewellery volumes in the short term, though demand is expected to remain resilient due to the yellow metal's enduring cultural and investment appeal in India.
Retailers said imposing quantitative restrictions on gold and silver imports, rather than raising import duties, would be a more effective way to curb the country's current account deficit (CAD).
They said that increasing import duties often drives up prices in the domestic market, hurts small and medium-sized enterprises.
Imports from Dubai may rise
Think tank GTRI said that the duty hike may lead to an increase in imports from Dubai through the free trade agreement route.
It said that the duty hike also sharply changes the economics of precious metal imports routed through the United Arab Emirates under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
India had allowed imports of gold from Dubai at tariffs one percentage point below the normal Most-Favoured-Nation (MFN) rate through a Tariff Rate Quota (TRQ) system.
The quota began at 120 tonnes annually in 2022 and is set to rise to 200 tonnes by 2027, nearly one-fourth of India's yearly gold imports.
"With the new MFN tariff structure taking effective duties to 15 per cent, gold imported under the UAE quota would enter at 14 per cent.
Published by HT Digital Content Services with permission from Millennium Post.