UPA's gold myopia is showing, says industry

The UPA government cannot get anything right, according to India’s mammoth jewellery industry.

The Centre’s decision to hike import duty on gold by two per cent has put jewellery trade insiders on the attack mode. They say the Centre is misplaced in its belief that the hike would serve to curb gold imports, adding that the move is born out of economic shortsightedness.

“We are going back to the 1980s when gold smuggling was at its peak,” says N Anantha Padmanabhan, regional chairman of the All India Gems and Jewellery Trade Federation. “This decision will only prove to be an incentive for those old elements to resurface. Gold is the second largest component of our import bill after oil. The government cannot touch oil imports, so they are playing with the gold tariff,” he adds.

Industry insiders in Mumbai’s Zhaveri Bazar, India’s largest bullion gold market, say the government is trying to hide the real reason for the hike. “They want to narrow the trade deficit. That is all there is to it. They are just using a dampener on gold imports as a ruse to do this. They are making it dearer for the common man to invest in the security of gold,” says a source at Zhaveri Bazar.

Gold industry bodies had made representations to the Centre over the past 15 days, ever since Finance Minister P Chidambaram indicated that he intended to hike the import tariff. The points they flagged included the fact that it would make the climate more conducive for gold smuggling, which would put money in the wrong hands, which in turn could go towards funding terrorism or other nefarious activities.

“But they are just not listening to our very real concerns. This is not going to affect demand. Instead, it will create a back channel for the demons of the past to come back,” says Anantha Padmanabhan.

According to Prithviraj Kothari, managing director of RiddiSiddhi Bullions Ltd, the hike of around `60,000 per kg of gold will have a loud impact on the bullion sector. “This may lead to rise in illegal channels and malicious activities with respect to importing gold and related products like jewellery etc. In turn it will lead to an increase in unemployment among the skilled artisans (around 1-2 million people depend on this sector to earn their livelihood) as well the businesses of local jewellers.”

“Hiking the duty on imports will in no way curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security,” he adds.