India: sinking rupee and duty on imported gold battering domestic jewelry trade
India: sinking rupee and duty on imported gold battering domestic jewelry trade
Since January 2012, tax on imported gold has risen eight times, while the rupee has lost 10% of its value against the US dollar.
The Indian jewelry manufacturing sector is likely to be hit hard by a series of tax rises on imported gold and the ongoing depreciation of the rupee against the dollar. Since January last year, the government has raised the tax on imported gold eight times. And the rupee has fallen by around 10 percent in the same period.
Adding to the problems for jewelry manufacturers is that rough diamond prices have soared by 10-12 percent in the last two months mostly because of mining disruptions in South Africa, reports The Business Standard. This has taken a toll on sales of domestic studded diamond jewelry. As a result, there has been a fall in domestic sales of jewelry set with diamonds. Consumers are now paying 30 percent more for gold jewelry due to higher prices for gold on international markets.
In the last two years, Indian jewelry exports have fallen in dollar terms by 9.5% to $39 billion from $43 billion in 2011-12.
According to the Indian government, the rise in tax on imported gold will encourage the public to invest in other assets and lead to a decline in gold imports. That will help reduce the large current account deficit.
However, domestic jewelers believe that their business will be hit since the rise in tax will cause a jump in domestic gold prices compared to the situation in other countries. They claim that the gold tax will encourage smuggling of the yellow metal into the country and cause the creation of a parallel market in gold.
