Jewellery sales rise 50% on freebies ahead of GST roll-out

Jewellers are offering 50% off on gold items; no making charges for diamond products in some cases

Jewellers have had a 50 per cent increase in their business over the past one week, with consumers rushing in to buy ornaments ahead of GST (goods and services tax) roll-out and the consequent price increase.

Many jewellers have offered up to 100 per cent discount on diamond jewellery making charges, and up to 50 per cent rebate on making of gold ornaments. Since the making charge works out to 12-18 per cent of the total value of the gold product, consumers rushed to jewellery shops to make future bookings and also build inventory for occasional use. With regard to diamond jewellery products, however, making charges are higher than those for gold.

"There is a rush in jewellery shops today with consumers buying aggressively ahead of the GST roll-out on July 1. With the implementation of the new tax regime, prices of gold would go up. So, consumers are booking their piece ahead of the price increase," said Nitin Khandelwal, Chairman, All India Gems and Jewellery Trade Federation (GJF).

In addition to the existing customs duty of 10 per cent, the government had levied an excise duty charge of 1 per cent and another 1.2 per cent charge to be collected as value added tax. So, overall tax levies during the pre-GST regime worked out to 2.2 per cent, as against 3 per cent in the post-GST era. This means, gold would become costlier by 0.8 per cent from July 1 onwards.

Many jewellers, however, were exempted from excise duty as their business units were smaller. Hence, the overall levies in their case would remain at a negligible 1.2 per cent only. Now, all of them would have to pay 3 per cent of GST in a move that would make gold become costlier by 1.8 per cent for them.

"Those consumers who had deferred their bookings for future, have come to buy jewellery now. This has led to a sharp increase in sales in the last few days," said Kumar Jain, Director, Umedmal Tilokchand Zaveri, a jewellery retailer in Zaveri Bazaar.

Surendra Mehta, National Secretary, India Bullion and Jewellers Association (IBJA) believes that India may face a gold shortage in the first week of the GST roll-out as active import among dealers would decline.

Meanwhile, a Crisil official says that the GST regime will provide a fillip to the retailers in the organised sector by weaning business away from the unorganised players, who currently account for three-fourths of the industry's annual revenue estimated at about Rs 2.85 lakh crore. Besides GST, other measures such as the ban imposed on cash purchases beyond Rs 2 lakh, gold-on-loan and other deposit schemes have also been beneficial for organised retailers.

"The modest increase in the overall tax rate is not expected to impact demand. Further, better supply-chain efficiencies and enhanced transparency will provide an edge to the organised players and help them garner a higher market share over the medium term," said Amit Bhave, Director, Crisil Ratings.