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The All India Gems and Jewellery Federation recommended several measures to assist India’s government on the current account deficit (CAD).
The gems and jewelry industry stands by the government and recommends measures to assist the CAD. The industry says country first but industry must also survive.
Gold – An Asset or Liability
Gold – An Asset or Liability
The All India Gems and Jewellery Trade Federation (GJF) is the nodal and the largest single trade body in India representing the over 600,000 players comprising of manufacturers, wholesalers, retailers, distributors, laboratories, gemologists, designers and allied services to the domestic gems and jewelry industry. The issues that might affect the industry are mentioned below in details.
Duty on gold has been rising from 1 percent in January 2012 to 8 percent in June 2013. This has encouraged illegal imports of tons of gold for which the government is least concerned.
RBI issued circulars and notifications stating that imports of gold will only be permitted against (100 percent) cash margins and no gold on consignment will be permitted. This affects the raw material “gold” used for manufacturing of the jewelry paralyzing the industry and putting artisans out of jobs and manufacturers out of business as there will be no gold available in the market.
The government has now asked all the banks to totally STOP or RESTRICT supplies of gold. There is huge shortage of gold in market and it has developed premiums on gold rates. The government has pushed the industry back in the times when the raw material supplies were controlled by the smugglers and mafia.
There are various measures that industry has recommended to get relief from CAD, however, the government has not taken any consideration on our recommendations. It is estimated that Indians hold close to 25,000 tons of gold. At the current gold price, this represents $1.25 trillion in value. It is estimated that by end fiscal year 2013, India will be a $2 trillion economy. The gold stock represents over 50 percent of the economy. One can view the $1.25 trillion value of physical gold as dormant savings account, which has not been put to productive use towards investment and capital formation. If even 10 percent of gold savings are freed up, it would represent resources of Rs 700,000 crore or $125 billion, which is more than this year’s gross borrowing by the government.
Here is a way for a savings / money / liquidity perspective, which could be used in a 10 year gold bond scheme.
WE HAVE SUGGESTED THAT CERTAIN LICENSED JEWELLERS BE ALLOWED TO ATTRACT GOLD FROM CONSUMERS AND DEPOSIT THE SAME WITH SCHEDULED BANKS WHICH WILL BE EASIER TO UNLOCK RATHER THAN SETTING UP A BULLION CORP OR GETTING BANKS TO DO THIS AS THEY DO NOT HAVE THE INFRASTRUCTURE OF JEWELLERS.
We would not require to import gold for the next three to four years.
Imports intended towards parking of large funds in RAW BULLION BAR Gold and other precious metals by high-net-worth-individuals (HNI) and institutions should be curtailed. This shall help in countering the pure investment aspect and this one step will eliminate gold hoarding by private individuals / institutions that are not in gems and jewelry manufacturing, retailing or exporting sector. Our estimation is that import of gold may reduce by 75 to 150 tons per year by this one step. Also we would recommend sales of raw bullion BAR GOLD and coins to be stopped by banks and jewelers AND BULLION DEALERS totally to stop need for investment as this will help to curtail imports by 25 percent to 30 percent and NOT TO ALLOW BULLION BAR GOLD SALES TO URD BUYERS.
Exchange-traded funds (ETFs) and gold traded funds may be allowed to loan their idle gold to channelizing agencies / nominated banks, which can in turn be circulated in the manufacturing process of the gems and jewelry Industry. This will help to reduce CAD AND ALLOW 50 PERCENT OF ETF GOLD TO BE USED FOR THE SECTOR, THEREBY REDUCING DOUBLE IMPORTS.
RBI to encourage gold deposit Schemes from consumers to organized jewelers to increase the monetization of idle gold stock in the country and serve needs of gold resource for jewelers.Present provisions of compelling imports against Cash only which will affect the rupee draining as dollar will become stronger.
ALLOW IMPORTS OF GOLD BY CHANNELING AGENCIES ONLY FOR OWN OR CAPTIVE RD USERS ONLY. URD SALES OF BAR GOLD TO BE STOPPED EVEN BY STAR TRADING HOUSES IF THEY ARE NOT OPERATING IN THE G&J SECTOR.
Such a vision to curtail import of gold could originate from the thought that:
Such a vision to curtail import of gold could originate from the thought that:
(i) Gold is a dead asset… NOT REALLY TRUE.
(ii) The import of gold causes a drain on foreign exchange reserves… YES BUT NOT FOR VALUE ADDED PRODUCTION OF GEMS AND JEWELRY.
(iii) Gold imported in India is not put to any economic use; rather, it lies idle in bank lockers… THIS IS ONLY URD PURCHASED GOLD BARS.
But, factually speaking, Indians love gold. You can take an Indian out of gold but you cannot take gold out of an Indian. So, whatever be the import duty, it would not deter Indians from buying gold. The flip side of an import duty increase is that it encourages the import of gold through unofficial channels, that is, promotes smuggling.
(ii) The import of gold causes a drain on foreign exchange reserves… YES BUT NOT FOR VALUE ADDED PRODUCTION OF GEMS AND JEWELRY.
(iii) Gold imported in India is not put to any economic use; rather, it lies idle in bank lockers… THIS IS ONLY URD PURCHASED GOLD BARS.
But, factually speaking, Indians love gold. You can take an Indian out of gold but you cannot take gold out of an Indian. So, whatever be the import duty, it would not deter Indians from buying gold. The flip side of an import duty increase is that it encourages the import of gold through unofficial channels, that is, promotes smuggling.
WE ALSO STRONGLY RECOMMEND THAT THE ADDITIONAL CUSTOMS DUTY COLLECTED OVER 4 PERCENT BE ALLOCATED TO DEVELOP THE AILING BUT IMPORTANT GEMS AND JEWELRY SECTOR IN DEVELOPING PRODUCTION PARKS SO AS TO ORGANIZE THIS POOR SECTOR. GOVERNMENT OUGHT TO SPEND THE MONEY COLLECTED AMOUNTING TO SEVERAL 1,000 CRORE RUPEES TO DEVELOP THE SECTOR THAT CONTRIBUTES THIS MONEY. WE DO NOT WANT THAT THIS MONEY BE USED FOR OTHER SECTORS.
GJF as a responsible trade body, is fully aware from last year, the havoc caused by bullion imports on the widening the CAD and it has been the concern of the policy makers. We had given various representations to the finance ministry as well as RBI suggesting various measures to reduce consumption of gold to ease the country out of the CAD situation. As an industry, GJF is ready to support the government to achieve their goals and to make sure we come out this crisis as a country. To reduce CAD, it may not be necessary to reduce consumption as the effects of the exercises done by increasing import duty in the past have proved futile. On the contrary, it has worked adversely and consumption had increased as purchases were prepared and shortages were created due to slow supplies.
Gold is the need of the citizens; it is not a fad but part of our heritage, culture and tradition and just cannot be short supplied. The after effects of this exercise will be more severe than the present crisis. People, produce, art and craftsmanship and are assets of the country cannot be considered as liabilities. There is hardly any product import that builds value to any person beyond a few years, while gold has built the right saving habits across India, a habit not comparable to any in the world.
GJF has in the white paper submitted in January 2013 to the Finance Ministry mentioned various activities that can help reduce need of imports since consumption cannot be curtailed anyway as supplies will find their way in. The alternative recommendations proposed by the industry are as follows:
The sector is a hand crafted and labor intensive one, with an over 1 crore strong labor force engaged in the manufacturing of jewelry in the domestic sector. The industry size is estimated to be in the region of 2,75,000 crores, this is a valid economic activity, which is bonafide. Uncertainty of supply of gold in the supply chain is rendering many artisans jobless and this will create a widespread resentment among the masses. Thousands of crores of rupees have been invested into employment creating infrastructure in the last few years, this should not be curtailed.
GJF as a responsible trade body, is fully aware from last year, the havoc caused by bullion imports on the widening the CAD and it has been the concern of the policy makers. We had given various representations to the finance ministry as well as RBI suggesting various measures to reduce consumption of gold to ease the country out of the CAD situation. As an industry, GJF is ready to support the government to achieve their goals and to make sure we come out this crisis as a country. To reduce CAD, it may not be necessary to reduce consumption as the effects of the exercises done by increasing import duty in the past have proved futile. On the contrary, it has worked adversely and consumption had increased as purchases were prepared and shortages were created due to slow supplies.
Gold is the need of the citizens; it is not a fad but part of our heritage, culture and tradition and just cannot be short supplied. The after effects of this exercise will be more severe than the present crisis. People, produce, art and craftsmanship and are assets of the country cannot be considered as liabilities. There is hardly any product import that builds value to any person beyond a few years, while gold has built the right saving habits across India, a habit not comparable to any in the world.
GJF has in the white paper submitted in January 2013 to the Finance Ministry mentioned various activities that can help reduce need of imports since consumption cannot be curtailed anyway as supplies will find their way in. The alternative recommendations proposed by the industry are as follows:
The sector is a hand crafted and labor intensive one, with an over 1 crore strong labor force engaged in the manufacturing of jewelry in the domestic sector. The industry size is estimated to be in the region of 2,75,000 crores, this is a valid economic activity, which is bonafide. Uncertainty of supply of gold in the supply chain is rendering many artisans jobless and this will create a widespread resentment among the masses. Thousands of crores of rupees have been invested into employment creating infrastructure in the last few years, this should not be curtailed.
Any discouragement in the manufacturing, consumption of gems and jewelry ought not to be perpetuated. Restrictions on imports will create shortage of supplies in turn will trigger premiums and encourage illegal imports.
Curtailment of imports by banks may help to ease out the situation temporarily but it will do more harm than good for the nation in the long run.
The industry feels that curtailing the import of gold on consignment basis will have its own problems and will jeopardize the gold industry on the whole and will create uncertainties on the sustainability of the industry.
The other ill effects from lack of gold to the industry will lead to higher premiums for gold, and resellers will enter this sector buying gold from banks just to sell at huge premiums, and also an increase in the black market for gold. Tracking gold may also be lost completely as raw gold will be sold to lay men, costing the exchequer precious Forex.
We would like to reiterate that any tough measure in the past, which put a premium on the domestic prices, has led to influx of gold into the country through illegal channels, leading to heavy loss of revenue to the government and a strong effect on the rupee value. We are equally concerned with the widening CAD situation.
The industry has only flourished after the abolition of Gold Control Act of 1991 and traveled a long way in contributing meaningfully to the state exchequer and giving an employment to more than 1 crore people. This should not be treated as an alien industry. We humbly request that the government should not take a piece meal decision and destroy this industry that is taking strides in becoming very organized businesses.
CUT WASTEFUL LOW VALUE ADDED BULLION BAR DEMAND BUT ENCOURAGE VALUE ADDED PRODUCTION. DO NOT CONFUSE THE TWO. THEY ARE NOT THE SAME SECTOR. GEMS AND JEWELRY ARE A BONAFIDE EMPLOYMENT SECTOR.
Curtailment of imports by banks may help to ease out the situation temporarily but it will do more harm than good for the nation in the long run.
The industry feels that curtailing the import of gold on consignment basis will have its own problems and will jeopardize the gold industry on the whole and will create uncertainties on the sustainability of the industry.
The other ill effects from lack of gold to the industry will lead to higher premiums for gold, and resellers will enter this sector buying gold from banks just to sell at huge premiums, and also an increase in the black market for gold. Tracking gold may also be lost completely as raw gold will be sold to lay men, costing the exchequer precious Forex.
We would like to reiterate that any tough measure in the past, which put a premium on the domestic prices, has led to influx of gold into the country through illegal channels, leading to heavy loss of revenue to the government and a strong effect on the rupee value. We are equally concerned with the widening CAD situation.
The industry has only flourished after the abolition of Gold Control Act of 1991 and traveled a long way in contributing meaningfully to the state exchequer and giving an employment to more than 1 crore people. This should not be treated as an alien industry. We humbly request that the government should not take a piece meal decision and destroy this industry that is taking strides in becoming very organized businesses.
CUT WASTEFUL LOW VALUE ADDED BULLION BAR DEMAND BUT ENCOURAGE VALUE ADDED PRODUCTION. DO NOT CONFUSE THE TWO. THEY ARE NOT THE SAME SECTOR. GEMS AND JEWELRY ARE A BONAFIDE EMPLOYMENT SECTOR.
In Conclusion:
> WE DEMAND CONTINUATION OF 25 PERCENT MARGIN REQUIREMENT FOR GOLD LOANS.
> WE DEMAND CONTINUATION OF GOLD LOANS ON SBLC SCHEMES.
> WE DEMAND CONTINUATION OF 180 DAY PAYMENT CYCLES FOR GOLD LOANS.
> WE DEMAND ABOLITION OF RAW BULLION BAR SALES TO URD BUYERS.
> WE DEMAND FREE FAIR TRADE WITHOUT CONTROLS
> WE DEMAND CONTINUATION OF GOLD LOANS ON SBLC SCHEMES.
> WE DEMAND CONTINUATION OF 180 DAY PAYMENT CYCLES FOR GOLD LOANS.
> WE DEMAND ABOLITION OF RAW BULLION BAR SALES TO URD BUYERS.
> WE DEMAND FREE FAIR TRADE WITHOUT CONTROLS
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