- FM increased customs duties on precious metals, gold, silver and platinum items and imitation jewelry in the 2023-24 budget.
- Raising import duties will raise the prices of silver and silver jewelry, which will affect demand and also hurt refiners, CRISIL said.
- Import duties on precious metal items have been increased from 22% to 25%.
- Higher taxes increase costs for consumers as the country imports most of the precious metal it consumes.
Jewelery is expected to become much more expensive as customs duties on precious metals, gold, silver and platinum items and fancy jewelery have been increased in the Union budget presented by Finance Minister Nirmala Sitharaman on Wednesday.
To make matters worse, basic customs duties have been increased on items made from gold bars.
In addition, import duties on electric kitchen chimneys, bicycles, toys, electric vehicles and cigarettes have also been increased.
“I also propose to increase import duties on silver dore, bars and articles to align them with those on gold and platinum,” FM said in a budget speech in parliament.
The center did not raise import duties on gold, as India had increased its import duties on gold from 7.5% to 12.5% in July 2022. India meets most of its demand for gold by importing the precious metal.
The basic customs duty on silver was increased from 7.5% to 10%; and agricultural infrastructure and development cess (AIDC) on imports from 2.5% to 5%.
“Increasing import duties will raise the prices of silver and silver jewelry, which will affect demand and also hurt refiners,” CRISIL said in a report.
The import duty on precious metal items was increased from 22% to 25%. Higher taxes increase costs for consumers as the country imports most of the precious metal it consumes.
“Increase in import duties on imitation jewelry will increase product prices, impacting demand,” CRISIL said in a post-budget report.
Share prices of most jewelry stocks traded lower on Thursday
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|Uday Jewelery Industries||-1.64%|
|Tribhovanda’s Bhimji Zaveri||-0.96%|
Industry association Gem & Jewelery Export Promotion Council (GJEPC) said the industry had recommended a cut in import duties on gold/silver and platinum, which is not included in the budget. “The Council will continue to pursue the same with the government for the overall well-being of the industry,” said GJEPC.
The council said the increase in import duties will raise prices of silver products in domestic markets.
“The Union finance minister has also rationalized the import duties on silver by proposing to increase the duty on silver thorns, bars and articles to align them with those on gold and platinum. However, that will have a net effect of about a 5% increase in import duties on silver, resulting in an increase in the price of domestic silver products,” added GJEPC.
Lab-grown diamonds to boost demand for gold, experts say
Meanwhile, the FM has cut basic customs duties on seeds used in the production of lab-grown diamonds from 5% to zero.
The government views lab-grown diamonds as a technology and innovation-driven emerging sector with high employment potential. These environmentally friendly diamonds have the same optical and chemical properties as natural diamonds.
To boost indigenous seed and machinery production and reduce dependence on imports in the long run, one of the IITs will receive a research and development grant for five years, as announced in the budget.
“The government’s innovation and technology-driven approach is reflected in its investment in research into lab-grown diamonds, which will generate new employment opportunities while resonating with both exports and the urban Indian market,” said Ramesh Kalyanaraman, Executive Director at Kalyan jewellers.
It is unlikely that the increase in import duties on silver will have a significant impact on Kalyan Jewelers. “The increase in silver tariffs will not have a significant impact on us (Kalyan Jewelers) as our primary focus is on jewelery studded with gold, diamonds and other precious stones,” said Kalyanaraman.
Further, funding for laboratory diamond research is likely to benefit fashion jewelry maker Vaibhav Global, Goldman Sachs analysts say.
Experts say that as lab-grown diamonds become more popular and cheaper, it will eventually reduce the demand for natural diamonds and improve the demand for gold.
“The government also boosted the industry of lab-grown diamonds by reducing basic customs duties on seeds used in their production. If lab-grown diamonds become more mainstream in the near future, it could be positive for gold demand as demand for natural diamonds and thus their prices and appeal as an investment asset declines,” said Ghazal Jain, alternative investment fund manager at Quantum AMC.
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