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Gold Duty Hike Will Fuel Smuggling, Warns GJEPC

The Gem and Jewellery Export Promotion Council has warned that the recent hike in gold import duty will not reduce imports but will fuel smuggling. Exporters now face severe working capital blockage due to increased bank guarantee requirements. The impact will be particularly harsh on MSMEs, which account for 80% of the council's membership. GJEPC has proposed alternatives including promoting lower-carat jewellery and reviving the Gold Monetisation Scheme.

Key Points: Gold Import Duty Hike to Fuel Smuggling: Industry

  • Higher gold duty won't curb imports, will encourage smuggling
  • Exporters face severe working capital blockage of Rs 28-30 lakh per kg
  • MSMEs accounting for 80% of membership hit hardest
  • GJEPC proposes lower-carat jewellery, gold exchange, monetisation scheme
2 min read

Higher gold import duty won't curb imports, will fuel smuggling: Industry

Gem and Jewellery Export Promotion Council warns higher gold import duty will not curb imports but fuel smuggling and hurt MSMEs.

"Higher import duties do not reduce imports but instead lead to a rise in prices and encourage smuggling - GJEPC"

New Delhi, May 13

The Gem and Jewellery Export Promotion Council on Wednesday urged the government to hold consultations with industry stakeholders after the recent hike in gold import duty, saying that higher duties do not reduce imports but instead lead to a rise in prices and encourage smuggling.

In a statement, the council said that increasing import duties on gold has historically failed to curb imports, even as gold prices have nearly doubled in recent years without a proportional decline in demand.

According to the industry body, the latest duty hike would raise costs for exporters and put additional pressure on working capital requirements.

The government has increased the basic customs duty on gold to 10 per cent from 5 per cent and raised the Agriculture Infrastructure and Development Cess (AIDC) to 5 per cent from 1 per cent.

Reacting to the move, GJEPC said exporters are now required to furnish bank guarantees of nearly Rs 28-30 lakh per kilogram of duty-free gold sourced from Nominated Agencies, resulting in severe blockage of working capital.

The council warned that the impact would be particularly harsh on micro, small and medium enterprises (MSMEs), which account for nearly 80 per cent of its membership and are already grappling with a liquidity crunch.

The council also noted that higher import duties tend to fuel gold smuggling while simultaneously increasing export costs for the domestic jewellery industry.

Acknowledging the government's concerns over rising imports, GJEPC said it has already convened meetings with major retailers and manufacturers and has written to Prime Minister Narendra Modi suggesting a range of measures aimed at reducing gold imports without hurting the industry.

Among the proposals suggested by the council are promoting lower-carat jewellery such as 18-karat and 14-karat products, which it believes could reduce imports by 20-30 per cent.

It also recommended encouraging old-gold exchange programmes and reviving the Gold Monetisation Scheme to mobilise India's estimated 25,000 tonnes of household gold reserves.

The council said it is separately preparing a detailed proposal for reviving the Gold Monetisation Scheme and will submit it to the government soon.

It further urged policymakers to engage in discussions with the industry to find sustainable solutions that balance fiscal objectives with export growth.

- IANS

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Reader Comments

P
Priya S
As someone who works in a small jewellery shop, I can tell you the impact is real. We're already struggling with GST compliance and now this 10% duty means our working capital is stuck. Many MSMEs like my family's shop might have to shut down. The government should listen to GJEPC and think about reviving the Gold Monetisation Scheme instead.
S
Sarah B
I'm an NRI and every time I visit family in Mumbai, the price of gold jewellery shocks me. The fact that smuggling increases with higher duties is common sense—just look at what happened with cigarettes. The government's move seems short-sighted. Encouraging 18-karat jewellery is a smart alternative.
V
Vikram M
The government has a point about controlling the current account deficit—gold imports are huge. But raising duties alone won't solve it; it just encourages illegal channels. We need better enforcement AND smarter policies like promoting gold exchanges or monetisation of household gold. Why doesn't the government engage more with industry bodies like GJEPC?
D
David E
As an economist looking at this from abroad, I see the same pattern everywhere—import duties on gold never work long-term. India's demand is cultural, not just economic. The 25000 tonnes of household gold is a huge idle resource; the Gold Monetisation Scheme revival makes a lot of sense. Hope the government acts on it.
K
Kavya N
Honestly, I think both sides have valid points. The government needs to manage imports, but the industry is right that high duties hurt MSMEs and encourage smuggling. I wish they'd sit together and find a middle ground—maybe a phased duty reduction combined with stricter norms for domestic gold

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