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Riding on Gold

Jewellers Associations throughout the country went on strike at the imposition of a one percent excise duty in this year’s budget. They organised a protest in Jantar Mantar demanding a roll back.

Nirupama Sekhri
Publish Date: Apr 15 2016 4:30PM | Updated Date: Apr 16 2016 11:29AM

Riding on Gold

Jantar Mantar was booming with excitement on Wednesday, March 06. Heedless to the sweltering heat, Congress leaders, Ajay Maken, Digvijay Singh, Bhupender Hooda and his son Deepender Hooda were on the ‘stage’ that are so quick to come up on this official street of protest. 


They were doing the only one thing they seem to be keeping themselves principally occupied with these days – castigating the government. 


This time it was demanding the rollback of the one percent excise that the FinMin has levied on the jewellery industry.


They were joined by a large group of jewellery shop owners and traders wearing white caps made popular by the Aam Aadmi Party but sporting their own slogan.


It is no wonder that this provided such an attractive bandwagon to leap onto. FICCI’s Jewellery Review 2013 reports that the industry contributes 6% to 7% to the country's GDP; it is highly export-oriented, labour-intensive and provides employment to 2.5 million people in India, as compared to IT services which provides 2.1 million jobs. The domestic gems and jewellery industry had a market size of Rs. 251,000 cr in 2013, with a potential to grow to Rs. 500,000 – 530,000 cr by 2018. 


However, the sector, specifically gold jewellery, comes with a set of economic challenges that every government in power has tried to tackle. Firstly, it contributes substantially to India’s trade deficit – India has a very limited production of gold, yet is the world's second-biggest consumer of the metal with hundreds of thousands of kilos being shipped in annually. Any drop in this demand favourably impacts India’s export-import imbalance. 


Secondly, despite its sterling value, it is dead weight. Most of it is hoarded and locked away, not participating in the country’s economic flow. 


Various governments, at different times, have tried to restrain domestic appetite for the precious metal by introducing sales tax on gold jewellery, as well as trying to encourage people to monetise it through gold deposit and monetisation schemes.


While these measures have had moderate to low levels of success, through this year’s Union Budget the government levied a one per cent excise duty, which was on top of the import duty that was maintained. 


The measure had an immediate impact on the sector. There were protests through- out the country with some cities like Mumbai and Nagpur shutting shop for upto 18 days.  


The main concerns of the industry seemed to be the unilateral way the duty was levied, and the corrupt and whimsical way they perceive the excise department can behave, which they believe is the experience of any sector that the excise dept. has access to.


While they agree that there is an opaqueness in the way the industry functions, but giving excise officials access to their books is not the way to deal with that. 


“In terms of a financial implication, it isn’t much, and has little to do with us – we will just pass that increase on to the consumer,” says a prominent Delhi-based jeweller, “What we don’t want is the inspector raj that such a move will unleash on us.”


In response, on March 21, the Government’s Tax Research Unit, Ministry of Finance shot off a letter to sector associations informing the setting up of a high level committee under Dr. Ashok Lahiri, former Chief Economic Advisor, to look into the industry’s concerns. The letter states that the Committee will submit its report in 60 days, after in-depth engagement with jewellery associations and representative groups. 


In the interim, it also clearly declares that “the central excise authorities will not challenge the valuation given in the invoice” of jewellers, as well as clearly barring the visit to the shop, manufacturing unit or home of any jeweller by any excise officer.


Meanwhile, the actors on the Jantar Mantar stage were joined by Rahul Gandhi. Conveniently, and foolishly, forgetting that their own party had tried similar stunts during their own tenure, specifically the very same one in 2012, he lambasted the government for trying to “assassinate” the industry.


After some more shouting and sloganeering, the politicians and jewellers boarded their sleek, air-conditioned vehicles, leaving the minions to clean up the stage after them.