MUMBAI: There is every reason for women to smile as their favourite ornaments are going to get cheaper by at least 9 percent with Finance Minister Nirmala Sitharaman slashing customs duty on gold to 6 percent from 10 percent. The effective cut in the retail price of jewellery including in the cess is 9 percentage points (from 15 percent to 6 percent), while the wholesale reduction will be about 4 percent.
Announcing her seventh consecutive Budget and the first in the Modi government’s third term, the finance minister said, “To enhance domestic value addition in gold and precious metal jewellery, I propose to reduce customs duties on gold and silver to 6 percent from 10 percent and that on platinum to 6.4 percent.”
The step aims at reducing input costs, deepening value addition, promoting export competitiveness, correcting inverted duty structure and boosting domestic manufacturing. An unstated impact will be lesser incentive to smuggle in the yellow metal, which has seen a massive spike in recent years.
The minister also slashed the customs duty on gold bars from 15 percent to 6 percent, gold ore to 5.35 percent from 14.35 percent, and gold and silver findings to 6 percent from 15 percent.
MCX gold prices fell by Rs 4,000/1 gm from Rs 69,000 as a knee-jerk reaction after the announcement and are expected to fall further to around Rs 67,000/10 gm according to the international price, while silver fell by around 2.5 percent to Rs 87,000/kg after the announcement.
Kinjal Shah, a senior VP & co-group head-corporate ratings at Icra Ratings, said, “Gold prices, which rose by 40 percent in the last three years, will soften with the reduction in custom duty to 5 percent from the current 10 percent and AIDC to 1 percent from 5 percent, thus boosting overall demand for gold and jewellery.”
Duty rationalisation will help accelerate formalisation of the gold jewellery industry, enabling meaningful conversion of unorganised to organised trade, she said further, adding safe harbour rates will encourage foreign miners to sell rough diamonds directly in the country, as against current imports, thus facilitating timely and cost-effective procurement by domestic diamantaires.
According to Aditya Jhaver, a director with Crisil Ratings, safe harbour rates for foreign miners selling raw diamonds here will benefit the domestic diamond sector as 92 percent of the raw diamonds mined globally are polished in the country.
With the duty cut, import prices for diamonds will come down which will have a spillover effect on polishers and exporters, reducing export and retail prices in tandem. This will likely push polishers’ volumes in an otherwise subdued export environment, while supporting operating profitability, he added.