New Delhi: As Finance Minister Nirmala Sitharaman prepares to present the Union Budget on February 1, 2025, the jewellery industry remains hopeful of consumption-boosting measures. The 2024 Budget’s decision to reduce import duties on gold and silver to 6 per cent was expected to drive demand and curb smuggling. However, industry leaders argue that while the move provided some relief, other forces affected true growth.
Did the import duty cut deliver the promised boost?
The reduction in import duties was aimed at making gold more affordable and reducing the incentive for illicit trade. However, mixed results suggest that the government may need to go further. Suvankar Sen, MD and CEO, Senco Gold and Diamonds, acknowledged some benefits.
“For retailers like Senco Gold and Diamonds, this reduction has not only stimulated domestic demand but also improved profit margins, as the cost savings on raw materials have enhanced pricing flexibility,” said Sen adding that the lower import duty has bolstered the export competitiveness of Indian jewelry manufacturers, enabling them to capture a larger share of the global market.
MP Ahammed, chairman, Malabar Group said that while the import duty cut has rejuvenated consumer sentiment, volume-based sales are yet to reach the anticipated higher trajectory.
“The import duty cut was aimed at curbing smuggling and controlling unaccounted business, and in that sense, it yielded tangible results, with smuggling showing a notable decline. However, the consumer aspect is distinct. Adverse geopolitical developments and the interest rate cut by the US Federal Reserve strengthened the gold price rally on the back of safe-haven demand, neutralizing some of the benefits of the import duty cut in terms of consumption and demand boost,” he stated.
Joy Alukkas, chairman and MD, Joyalukkas Group, noted that while domestic sales had improved, affordability remained a concern. “With the lower import duty, the cost advantage of purchasing gold abroad has diminished, leading to a decline in gold purchases by international travelers. This policy change has been a key factor driving the increased demand for gold ornaments domestically.”
What more can the budget do?
Despite some positive developments, consumer demand remains subdued in volume terms, and industry leaders are calling for further interventions in the upcoming budget.
Sen believes tax reliefs could directly impact spending. “Introducing income tax reliefs, such as increased exemptions or deductions for jewellery purchases, could directly boost consumer spending. Additionally, reducing GST rates on gold, silver, and diamond jewellery would make these products more affordable, encouraging higher sales volumes.”
MP Ahammed advocated for revising the Gold Monetisation Scheme. “The budget needs to propose measures to make the gold monetisation scheme more attractive to the people. This way, more idle household gold will be mobilized, resulting in a reduced gold import bill and a decreased current account deficit.”
Alukkas suggested broader financial support for manufacturers. “Reducing the GST on jewellery (currently 3%) could make jewellery purchases more attractive. Tax rebates for jewellery manufacturers to promote more production, cheaper finance assistance by banks/NBFCs for MSME manufacturers, and tax incentives for jewellery exports through dedicated Special Economic Zones could all boost affordability, encourage investment, and enhance the jewellery sector’s appeal to consumers.”
