The research wing of ICRA Ltd (formerlyInvestment Information and Credit Rating Agency of India Limited) said in a report released earlier this week that as a result of new government regulations and the prolonged jewellers’ strike, Indian jewellery manufacturing is expected to decline by about 40-50 tonnes for the fourth fiscal quarter ending on 31 March, 2016.
After finance minister Arun Jaitley announced a one-percent excise duty on non-silver jewellery on 2 March, a large number of gold traders and jewellers have gone on strike in protest.
ICRA says that the excise duty announced in this Budget will be passed on to consumers, but is unlikely to have any impact on demand, given that consumers have adjusted to an increase in import duty from 4 to 10 percent over the last few years.
Noting that overall demand for gold jewellery has been relatively good over the last few months, the report said that the decline in this quarter may be temporary and overall volumes for the year are likely to be relatively stable. ICRA expects that the industry will gradually adhere to the new norms, and this will spur pent up demand in subsequent quarters.
The report projects a growth of five to six percent in value terms and one percent in volume terms over 2016, mainly driven by an approximately five-percent rise in gold prices, increased rural demand and expansion by organised players.
Moreover, the agency believes that the tax will benefit the organised retail industry over the medium to long term. It would also favour organised jewellery manufacturers who possess strong information systems to comply with the requirements. The report notes that the excise levy is also likely to lead to a longer term change in the sourcing mix for organised retailers who will incline towards larger, organised sector manufacturers as against the current practice of sourcing primarily from the unorganised sector. As a result small artisans and job workers, who have neither the expertise nor the infrastructure to maintain records are likely to be hit.
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