Consequences of 1% excise duty on manufacturing of jewellery items

Finance Minister Arun Jaitley has announced in his budget that 1 per cent excise duty will be imposed on the manufacturing of gold and diamond jewellery items without input tax; and those with input tax will be charged at 12.5 per cent. This decision by the government has turned to be a very disappointing decision for many jewellery brands, which as a result has forced them to go on an indefinite strike until further notice.

Over 300,000 jewellery shops affiliated to more than 300 associations across India went on strike since the excise duty announcement was made in the budget presented on February 29. This move of government was made with the aim of bringing the growing sector into the main stream of economic activity.

As per Modi’s budget, the price of gold will go up, thus, it will be very difficult for the government to implement the excise duty. Jewellery in India is mostly hand crafted, rather than machine made, and government will face a lot of problems in imposing the excise duty. Some jewellers might absorb this excise, but most of the jewellers will pass it on to the consumers.

Jewellery sector is one of the largest employment generators. The 1per cent excise duty will lead to job losses. This move will increase the price of jewelleries when their raw material prices are hardening. Only silver jewellery is exempted from this norm but gold jewellery retailers and importers have to face the consequences if the government doesn’t reform the duty structure.

If the demand drops because of the increased price, it will impact the financials of the leading companies. This gesture of the government is not appreciated at all by most of the leading brands in this industry.

To look into this matter, a three-member committee, headed by former Chief Economic Adviser to the Finance Ministry, Ashok Lahiri, has been constituted to find a solution for it.