Jewellers taxing strike

Published: Thu, 04/14/2016 - 09:30

As the month and a half long protest comes to an end the core issue still remains unresolved
Nikhil Thiyyar Delhi

Arun Jaitley was once the poster boy of the jewellers of India. During his stint as the Union Cabinet Minister of Commerce and Industry in 2004, he had announced that importing gold would be freed of all restrictions in the time to come. On February 29, 2016, a much older Jaitley presented the budget for the fiscal year 2016-17 and, almost unaware of what the younger version of him had said all those years ago, he did just the opposite. The budget imposed a one  per cent excise duty on all gold jewellery and studded ornaments, such as gold rings with diamonds on them. This move on the part of the government came as a shock to jewellery traders all over the country, who almost immediately called a strike to protest against it. Traders already pay a steep import duty of 10 per cent on gold, and an additional 1 per cent excise duty, according to many, was excessive. 

The strike was called off after 45 days and it has had far-reaching ramifications on small businesses and the politics of the country. The entire industry had in the past month come to a standstill. Many see it as a direct hit at small and medium enterprises in the country. A jeweller in Jaipur told Hardnews that the government was unwilling to listen to what the traders had to say. The relationship between the unions and the government had soured to such an extent that many shops were trading on the sly just to stay afloat. According to sources at the Delhi Jewellers Association (DJA) the shutting of jewellery shops in the National Capital Region alone caused losses upwards of Rs 100 crore a day. It was the smaller shopkeepers who were worst-affected. Rumours of smaller traders melting their gold jewellery and selling it spread like wildfire. All over the country small or big shops shut down, protesting against a government that they helped bring to power.

The incumbent Finance Minister seems more steadfast in his resolve to maintain the excise duty than his predecessors. In 2012, then FM Pranab Mukherjee too had made a similar announcement, but was forced to roll back the policy after facing vociferous protests. It is definitely a strange move on the part of the BJP, which in 2014 had touted itself as the party that would reduce bureaucratic red tape. To many, this budgetary imposition goes contrary to what was promised.

It is those at the bottom of the value chain who are getting hurt. It’s an open secret in the industry that artisans are notoriously underpaid and overworked, but the strike has made it difficult to fend off starvation for the artisan and gold worker

Ashok Kumar of the DJA while speaking to Hardnews was scathing in his assessment of the move. “Not only have they created a possibility where the excise department will wield enormous power, but they have also made jewellers vulnerable to harassment by excise and customs officials. There is no clarity on which part of the process this excise duty will apply to, which has led to fears that each stage of the process will be taxed – leading to unmanageable paperwork and the threat of harassment from corrupt excise officials.”

If the purpose is to make the gold trade more transparent and accountable, then the move may just have the opposite impact. When the previous government increased the import duty in 2012, it led to a resurgence in gold smuggling and 942 crores worth of gold was seized by the customs officials. In the same year imports fell by 56 per cent and the imposition of the steep duty ended up doing more harm to the government than good.

The jewellery community has traditionally been the coffers of the BJP during election time. By imposing the excise duty, the BJP may have lost its hold on this wealthy vote bank. According to SK Jindal of the Indian Bullion and Jewellers Association, “The jewellers of India have been staunch supporters of the BJP throughout. We expected at least some degree of responsiveness from the present government. They have refused to budge. This government is no different from the previous one. A lot of jewellers made a huge mistake by donating generously to the BJP.” Jindal further added, “The excise duty is not the first grievance that the community has against the government. Jewellers complain that their business has reduced by as much as 25 per cent to 30 per cent ever since the government in December made it mandatory for buyers to furnish their PAN numbers while buying jewellery worth more than Rs 2 lakhs.”   

It is those at the bottom of the value chain who are getting hurt. It’s an open secret in the industry that artisans are notoriously underpaid and overworked, but the strike has made it difficult to fend off starvation for the artisan and gold worker. According to Ajay Mehra, who runs a large jewellery shop in Chandni Chowk, “Most of my workers have left for their villages as there was no work for them during the strike. I spent a lot of money to train these workers. Finding new skilled workers is going to be a massive headache.” Reports of workers committing suicide in the past 45 days have begun to filter in.

The imposition of the excise duty will lead to some systemic changes in how the industry operates in the long run. Excise levy will require jewellers to keep records of purchases of gold. Compliance cost for manufacturing would go up which will lead to structural changes and even consolidation. A bullion trade association’s top official said many small jewellers who also work with unaccounted gold would prefer to exit jewellery manufacturing by selling their business to a bigger company and start trading, an activity which has no excise duty.

 

As the month and a half long protest comes to an end the core issue still remains unresolved
Nikhil Thiyyar Delhi

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