Higher gold import duty won’t curb imports, will fuel smuggling: Industry

The Gem and Jewellery Export Promotion Council has urged the government to consult industry stakeholders following the hike in gold import duty, warning that higher duties could increase smuggling, raise exporter costs and worsen liquidity pressures, especially for MSMEs in the jewellery sector

New Delhi: The Gem and Jewellery Export Promotion Council (GJEPC) on Wednesday urged the government to hold consultations with industry stakeholders after the recent hike in gold import duty, saying that higher duties do not reduce imports but instead lead to a rise in prices and encourage smuggling.

In a statement, the council said that increasing import duties on gold has historically failed to curb imports, even as gold prices have nearly doubled in recent years without a proportional decline in demand.

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According to the industry body, the latest duty hike would raise costs for exporters and put additional pressure on working capital requirements.

The government has increased the basic customs duty on gold to 10 per cent from 5 per cent and raised the Agriculture Infrastructure and Development Cess (AIDC) to 5 per cent from 1 per cent.

Reacting to the move, GJEPC said exporters are now required to furnish bank guarantees of nearly Rs 28-30 lakh per kilogram of duty-free gold sourced from Nominated Agencies, resulting in severe blockage of working capital.

The council warned that the impact would be particularly harsh on micro, small and medium enterprises (MSMEs), which account for nearly 80 per cent of its membership and are already grappling with a liquidity crunch.

The council also noted that higher import duties tend to fuel gold smuggling while simultaneously increasing export costs for the domestic jewellery industry.

Acknowledging the government’s concerns over rising imports, GJEPC said it has already convened meetings with major retailers and manufacturers and has written to Prime Minister Narendra Modi suggesting a range of measures aimed at reducing gold imports without hurting the industry.

Among the proposals suggested by the council are promoting lower-carat jewellery such as 18-karat and 14-karat products, which it believes could reduce imports by 20-30 per cent.

It also recommended encouraging old-gold exchange programmes and reviving the Gold Monetisation Scheme to mobilise India’s estimated 25,000 tonnes of household gold reserves.

The council said it is separately preparing a detailed proposal for reviving the Gold Monetisation Scheme and will submit it to the government soon.

It further urged policymakers to engage in discussions with the industry to find sustainable solutions that balance fiscal objectives with export growth.