Gitanjali: Balance Gold Tax Hikes With Impact on Jewelry Industry

(IDEX Online News) – Gitanjali Group head Mehul Choksi says he supports the government's recent moves to raise import duty on gold in a bid to reduce the current account deficit, but says it should be done while taking into account the medium to long-term impact on the country's jewelry industry which provides employment for more than 4.5 million people.

The government earlier this month increased duty on gold to 8 percent from 6 percent after demand for the yellow metal soared in May to around 162 tons – approximately double the average monthly level. It was the second time this year that the government has raised tax on gold – after increasing it to 6 percent from 4 percent in January.

"The series of guidelines issued by the Reserve Bank of India has had a major impact on gold imports. While supply to the domestic industry has virtually come to a halt, very few banks are delivering gold for exports," Gitanjali said in a statement.

"Gitanjali Group has always had a diverse product category mix, with gold jewellery, which accounted for 25-30 percent of the total revenues, being viewed as a complementary product category with low margins. In the current scenario some changes in the product mix with a reduction in the gold jewellery segment are inevitable.

"However this may not have major implications for the bottom line in which the main diamond jewellery business is the important contributor. The group has well-established diamond jewellery brands and a strong manufacturing set up catering to the exports sector and supplying markets world -wide. Moreover, the group has ownership and controls the supply chain of leading retail chains in US, Japan and Middle East.

"In the current scenario, the company plans to increase its diamond jewellery sales which have better value addition of 25-30 percent. Although this change in category mix will have impact on sales, the margins are expected to not only remain intact but also be better than estimates."

It also plans to introduce a lower category of 9K or 11K gold and diamond jewelry in Indian market, and to increase its store presence in the US, Mideast, China and Japan "which have a positive outlook and have grown by nearly 15 percent in the last one year. On another front, the company has plans to introduce more value added gold jewellery rather than selling it as coins."