India's Largest Gold Market Closes Down in Protest at Excise Tax

Finance and Trade
01/03/2016 09:48

The repercussions of budget changes affecting the Indian jewelry market have started to be felt with India’s biggest gold market closing down on Tuesday as jewelers in the country’s commercial capital began an indefinite strike to try to reverse a plan by Prime Minister Narendra Modi to introduce an excise tax. Jewelers in Mumbai’s Zaveri Bazaar stopped work and want the proposal for a 1% levy announced in Monday’s annual budget to be withdrawn, according to Ketan Shroff, a spokesman for the India Bullion and Jewellers Association Ltd., which has 10,000 members, Bloomberg reported.

India is the world's second-largest gold market. The stoppage in Mumbai may spread throughout the country, with the All India Gems & Jewellery Trade Federation, which represents 300,000 jewelers and bullion dealers, to decide later Tuesday with other associations what course of action to take, according to Chairman G.V. Sreedhar. A three-week nationwide strike in 2012 was successful in persuading Modi’s predecessor, Manmohan Singh, to jettison plans for an excise tax on gold jewelry, although the government did impose an import duty.

“It will be a headache for the small jewelers, which make up 80 percent of the industry, and they will have another department to report to from a compliance point of view,” Sreedhar. “This will hurt their operational ability and this will flow down to the retail level as well.” The planned excise tax will make purchases more expensive for buyers and lead to irregular business practices, P.R. Somasundaram, managing director for India at the World Gold Council, said on Monday after Finance Minister Arun Jaitley announced the move. The planned levy will put a significant compliance burden on the industry, which has been weighed down by the import duty and a value-added tax, he told Reuters.