Mumbai: India’s federal budget on Monday brought little relief to the gem and jewellery sector as lack of a cut in interest rates took away cheer from the excise exemption on branded jewellery sales, industry officials said.
“The budget is not very encouraging for the gems and jewellery industry,” said Vasant Mehta, chairman, Gems and Jewellery Export Promotion Council.
“We had asked for an interest subvention which has not been attended to. The exports of the country will be hurt because we are not at par with our international competitors and in recessionary times we need to be competitive,” he said.
Gem and jewellery exports contribute 12% to India’s foreign exchange reserves.
The industry currently benefits from an interest rate cut of 2%, which has been extended till March 2010. The sector had demanded an additional 2% interest subvention.
The government’s move to exempt branded jewellery sales from excise duty did little to revive sentiment as the government increased customs duty on precious metals and hurt the sector already reeling under the economic downturn, officials said.
“There is some good news as the 2% excise duty on branded jewellery is gone but the gold price hike and no further lowering of interest rates is likely to hurt,” said Mehul Choksi, chairman, Gitanjali Gems Ltd.
The amount of gold in studded jewellery varies from 25-30%.
“The duty on gold will affect the industry as a whole as gold prices in India will go up... the industry was looking for abolishing of the duty,” said Rajesh Mehta, chairman and managing director, Rajesh Exports.
The 2009-10 federal budget saw customs duty on gold bars being raised to Rs200 per 10 grams from the current Rs100 while on other forms of gold excluding jewellery it was raised to Rs500 per 10 grams from Rs250.
However, sops given to the export sector as a whole were welcomed by the industry.
“From the export industry the welcome steps are the abolishing of the fringe benefit tax and the extension of the sunset clause.. from 2010 to 2011 wherein EOU’s (export-oriented units) and SEZ’s (special economic zones) are exempted from income tax,” said Mehta of Rajesh Exports.
Shares of Gitanjali Gems rose as much as 6.6% during the budget but soon reversed gains and ended down 4.42% to Rs103.9.
Shares in Rajesh Exports ended down 5.24% at Rs41.6 and Classic Diamonds ended at Rs15.4, down 7.23%.