Gold and silver jewellery to get a lot more expensive

• FM increased customs duty on precious metals, articles of gold, silver and platinum and imitation jewellery in the Budget 2023-24.
• Increase in import duty will raise prices of silver and silver jewellery, which will impact demand and will also be detrimental to refineries, said CRISIL.
• Import duty on articles made of precious metals increased to 25% from 22%.
• Higher tax increases the cost for consumers as the country imports most of the bullion it consumes.

Jewellery is set to get a lot more expensive, as customs duty on precious metals, articles of gold, silver and platinum and costume jewellery has been increased in the Union Budget presented by Finance Minister Nirmala Sitharaman on Wednesday.

To make matters worse, basic customs duty has been hiked on articles made from gold bars.

Apart from these, customs duty on electric kitchen chimneys, bicycles, toys, electric vehicles and cigarettes also increased.

“I also propose to increase the import duty on silver dore, bars and articles to align them with that on gold and platinum,” said FM in a budget speech in Parliament.

The centre did not raise import duty on gold as India had raised its import duty on gold in July 2022 to 12.5% from 7.5%. India meets most of its gold demand by importing the precious metal.

The basic customs duty on silver was raised to 10% from 7.5%; and agriculture infrastructure and development cess (AIDC) on imports to 5% from 2.5%.

“Increase in import duty will raise prices of silver and silver jewellery, which will impact demand and will also be detrimental to refineries,” said CRISIL in a report.

The import duty on articles made of precious metals was increased to 25% from 22%. Higher tax increases the cost for consumers as the country imports most of the bullion it consumes.

“Rise in import duty on imitation jewellery will raise product prices, impacting demand,” said CRISIL in a report post budget.

Share prices of most jewellery stocks were trading lower on Thursday

Industry body Gem & jewellery export promotion council (GJEPC) said that the industry had recommended reduction in import duty on gold/silver and platinum, which has not been considered in the Budget. “Council will continue to pursue the same with the government for the overall welfare of the industry,” said GJEPC.

The council said that the rise in import duty will increase prices of silver products in domestic markets.

“The Union Finance Minister has also rationalised the import duty on silver by proposing to increase the import duty on silver dore, bars and articles to align them with that on gold and platinum. However, that will have a net effect of an increase of around 5% duty at import level for silver resulting in increase of price for silver products domestically,” added GJEPC.

Lab grown diamonds to boost gold demand, say experts
Meanwhile, the FM has reduced basic customs duty on seeds used in manufacturing of lab grown diamonds from 5% to Nil.

The government sees lab grown diamonds as a technology and innovation driven emerging sector with high employment potential. These environmentally friendly diamonds have optically and chemically the same properties as natural diamonds.

To encourage indigenous production of seeds and machines and to reduce import dependency in the long run, a research and development grant will be provided to one of the IITs for five years as announced in the budget.

“The government’s innovation-led and technology-driven approach reflects in its investment towards research on lab-grown diamonds, which will generate new employment opportunities, while resonating with the export as well as urban Indian market,” said Ramesh Kalyanaraman, executive director at Kalyan Jewellers.

The increase in import duty of silver is unlikely to impact significantly to Kalyan Jewellers. “The increase in the import duty of silver will not have a significant impact for us (Kalyan Jewellers), as our primary focus is on gold, diamond and other precious stone studded jewellery,” said Kalyanaraman.

Further, lab grown diamond research funding is likely to benefit Vaibhav Global, manufacturer of fashion jewelry, says analysts at Goldman Sachs.

Experts say that as lab grown diamonds become more popular and cheap it will eventually reduce demand for natural diamonds and improve demand for gold.

“The government also gave a thrust to the lab-grown diamonds industry by reducing the basic customs duty on seeds used in their manufacturing. If lab-grown diamonds become more mainstream in the time to come, 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, fund manager- alternative investments at Quantum AMC.

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