The most expected import duty cut of gold was not considered by the FM
Finance minister Nirmala Sitharaman presented her second full-year annual budget in the Parliament on February 1, 2020. As expected, the FM announced a slew of measures to spur the fiscal health of the economy, which has been the slowest in a decade.
The Budget has given a balanced approach to agriculture and rural economy as well as infrastructure, industry and commerce. New fund allocation for farm, irrigation and rural development are likely to achieve the government’s existing plan of doubling farmers’ income by 2022.
Measures like additional spending on infrastructure, transportation, education, MSME and healthcare are likely to spur consumer demand and investment.
New spending in these areas is likely to generate employment as well. Simplification of the tax regime and tax relief to the middle class and the lower-middle-class segment may also improve the public sentiment.
Earlier, the corporate tax cut and monetary easing measures are taken by RBI failed to attract investment and boost the economy.
Anyhow, many of the schemes announced in the Budget are expected to be the pillars of the government’s dream of $5 trillion economy by 2025.
At the same time, the Budget gives nothing to cheer to the gold industry. The most expected import duty cut of gold was not considered by the FM.
Indian gem and jewellery sector is one the largest in the world contributing about 29 percent of global jewellery consumption. However, faltering demand for gold due to the overall slowness in the economy and elevated prices had an adverse effect on the gold industry.
A surge in duties and taxes also shelved the retail investors. In the last budget, gold’s import duty was hiked to 12.5 percent from 10 percent with a view to curb the widening Current Account Deficit.
Meanwhile, high taxes and duties compared to other international markets attract smugglers and illegal export to the country. There is also a threat of the grey market-making trouble for organised market players in the country.
It is expected that a possible duty cut can bring down the illegal import of gold into the country.
Concerns over faltering market conditions and the threat of the grey market, industry bodies demanded a scale-down of the import duty of gold. The Union commerce ministry also suggested a similar proposal to support the labour intensive small and medium business.
As per a recent report, gold imports to the country are placed at the lowest level in the last three years. During 2019, gold imports fell 12 percent as against its previous year.
Meanwhile, as per Gem and Jewellery sources, smuggled inflow of gold in the country for the last year is about 140 tonnes.
Proposals to increase the gold purchase limit without PAN to Rs 5 lakh from the existing Rs 2 lakhs were not considered.
Likewise, the long-pending appeal for treating gold as an asset class for obtaining loan facility while purchasing gold was also not included in the budget.
There were also expectations that some structural changes in the Indian gold ecosystem. Due to Indian spot gold markets are largely unorganised and absence of a proper market regulator, it hampered the ability of the industry to emerge as a world leader.
Hopes of setting up of a regulator for the Indian spot gold market and plans to strengthen the gold’s scrap market were also not considered in the budget.
First Published in Moneycontrol.
