Finance Minister Nirmala Sitharaman made an announcement regarding a significant cut in the basic custom duty on gold and silver, reducing it to 6% from the current 15%, inclusive of the agriculture infrastructure development cess. This decision came to the surprise of many as there were expectations in the market for a more conservative cut ranging from 2% to 5%. This move has caused gold prices to trade at a discount in India for the past week.
Second Reduction in Basic Customs Duty since Feb 2021
This recent reduction marks the second time the basic customs duty has been lowered since February 2021. Prior to 2021, the duty had been increased eight times over the course of a decade.
Reduction in Duties for Precious Metals
In addition to gold and silver, the duty on Gold dore has been slashed from 14.35% to 5.35%, while the duty on silver bars has been decreased from 15% to 6%. Furthermore, the import duty on platinum has been reduced to 6.4% from 15.4%. These cuts in duties for precious metals are expected to bring relief to the jewelry industry in India.
Impact of Free Trade Agreements
The duty on gold imports under the Comprehensive Economic Partnership Agreement (CEPA) between India and the United Arab Emirates will differ from those under other free trade agreements with different countries. This move is also seen as a step towards curbing smuggling of gold within the country.
Support for MSMEs and Artisans
The support announced for micro, medium, and small enterprises (MSMEs) will provide a boon to many of the country’s jewellers. Additionally, the proposed e-commerce export hubs in the budget of 2024 will benefit artisans by setting up public-private partnerships to facilitate trade and export-related services under one roof. Furthermore, the establishment of industrial parks in collaboration with state governments will encourage the development of gem and jewelry parks.
Insight: The reduction in import duties on precious metals and the support for small enterprises and artisans is likely to not only boost the jewelry industry in India but also enhance the overall competitiveness and export potential of the sector. By creating a conducive environment for growth, the Indian government is signaling its commitment to promoting the development and expansion of the gem and jewelry industry in the country.
