The Hindu Business Line : Excise duty will bring discipline to jewellery trade

THE Indian jewellery market is highly fragmented and largely decentralised. The gold jewellery market, in particular, operates on the basis of trust and established relationship between the jeweller or goldsmith and the customer.

Significant volumes of gold and silver ornaments sold/purchased in the country are custom-made. The jeweller's business depends not only on his craftsmanship but also on the trust he enjoys with the customer. They are generally known as `family jewellers' and seldom advertise as their business growth is through traditional custom and word-of-mouth.

After liberalisation of gold imports a few years ago, a new breed of jewellers has invaded the marketplace. They are producers of ornaments in bulk in variousdesigns and standardised products. They advertise their wares as part of aggressive marketing strategy. Unlike street-corner family jewellers, they are entrepreneurs who have invested in production and marketing facilities.

Rising incomes and alluring advertisements attract buyers towards branded jewellery. Customers are generally from the affluent sections of the society. The two per cent excise duty imposed on branded jewellery by the Finance Minister, Mr P. Chidambaram, in last week's Budget has the trade up in arms against the proposal. Intense pressure is being brought on the Government to withdraw it. The trade went on strike on March 4. This over-reaction to a genuine revenue-generating measure is unwarranted. The clarification issued by the Government should set at rest apprehensions of the jewellery trade.

Clearly, large jewellers selling branded goods are the natural targets of the revenue department. The family jeweller is not within the ambit of excise duty at all. The excise duty regimen for branded jewellery is actually in the interest of the jewellery trade. It is no secret that a large number of transactions in jewellery trade are either not faithfully recorded or not recorded at all with a view, often, to evading taxes. What will the excise duty regime do? It casts a duty on jewellers to document all the transactions — raw material purchases, conversion into finished goods, sales and thereby, income. As all these transactions are inter-related, imposition of excise duty would make it rather difficult for producers to escape documentation.

Over time, excise duty will bring discipline to the trade and help create a level playing field for all players. Until recently, honest players were at a distinct disadvantage vis-à-vis others. Instead of whining, the jewellery trade must rise to the occasion and have a system of self-imposed discipline among players. Discussion with a cross section of market participants brought out the fact that most players resent documentation and visit of inspectors. One of the grievances is that excise duty will result in a lot of paper work. In any case, the makers of branded jewellery are not going to absorb the additional fiscal burden, but pass it on to customers. So, there seems to be little justification for hue and cry.

On the other hand, a two per cent addition to price is unlikely to burn a big hole in the pocket of buyers as they generally are well-to-do individuals who can afford to pay.

The Central Excise Department has a task at hand. It must ensure strict compliance with the new regimen and revenue collection. With two per cent excise duty levied on branded jewellery, there would be a corresponding countervailing duty on import of branded jewellery. The branded jewellery market is growing at a phenomenal rate and should bring in decent amount of revenue without hurting vulnerable sections of the population. The Finance Minister deserves kudos for this proposal and hopefully, will not succumb to lobby pressure.

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