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Wednesday, Apr 10, 2002

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Rajasthan tax plays havoc with Gujarat gold trade -- Business drops 50 pc to Rs 6,000 cr

Vinod Mathew


THE Gujarat bullion market, which at 280 tonnes accounted for a high 40 per cent of the entire country's 700-tonne market in 2000-01, is understood to have hit a trough in the last fiscal with volumes crashing by over 50 per cent to less than 140 tonnes.

In rupee terms, the Ahmedabad bullion juggernaut has slowed down perceptibly to Rs 6,000 crore worth of business in the last fiscal, a slump from Rs 12,000 crore worth of transaction in the previous year.

There is no disputing the fact that the bullion market of Ahmedabad, which became the largest landed destination in the country for the yellow metal ever since the Gold Control Act was scrapped in 1991-92, has begun losing its sheen.

On cards is a further erosion of at least 40 per cent of business this year as Maharashtra, one of its major constituents, is gearing to create its own market.

The new sales tax rates that came into existence in Maharashtra this fiscal will bring the rates almost on par with those in Gujarat that stand at 0.55 per cent. For a business that is already under siege from the undercutting of taxes by the Rajasthan Government, it is much worse than the havoc wreaked by the month-long riots that has led to almost no business getting transacted in the otherwise busy Manek Chowk (gold bazaar).

Says Mr Manoj Bhimani, Director, Choksi Mahajan (Bullion Merchant Association) and gold trader with a turnover of over Rs 500 crore, "The green channel system allowed a group of gold traders to team up and import large quantities of bullion for a one-time payment of Rs 1 crore. The sufferers, clearly, have been the State Governments, particularly that of Rajasthan as it has surrendered huge sales tax earning potential by offering this blanket deal."

Thus, a consortium importing say 1,000 TT (ten tola) bars daily would under normal conditions have to pay Rs 2.9 lakh as sales tax, Rs 58,400 being the current price per TT bar. At 25 working days a month, the annual sales tax payout would be around Rs 8.7 crore.

Against this, the `green channel' allows one to get away with a one-time payment of Rs 1 crore. The losses in sales tax not collected on bullion trade by the Rajasthan Government last year is understood to have been huge as the average daily bullion business in Jaipur is said to have crossed 7,000 TT bars.

It is reliably understood from some bullion merchants in the Johari Bazar of Jaipur that the Rajasthan Government is under pressure form all quarters including the various bullion merchants of Ahmedabad many of whom have opened their offices in Jaipur during last year to renew the tenure of the popular policy. It is the expectation of many bullion dealers there that `green channel' is set to get an extension from April 15.

According to Mr H.P. Rajdev, a former MMTC employee,who has now joined the bullion business, the margins have been under considerable squeeze ever since gold was brought under OGL in 1996-97. "The glorious days of bullion trading where margins were as high as Rs 400 per TT bar have gone and one has to make do with a maximum margin of Rs 50," he says.

With traded volumes of bullion in Ahmedabad once again facing an almost halfway split with Mumbai, it appears that 100-year-old Manek Chowk here is now faced with a major crisis.

One that will depend to a great extent, not as much on the vagaries of the riot-minded who have ensured the closure of much of its business the last one month, as on whether the Rajasthan Government continues with its ad hoc sales tax policy for gold.

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