‘Thousands of people are being rendered jobless due to high duties and taxes’.
New Delhi: The gold and textile industries are also being affected by the economic slowdown. This comes after a massive financial stress was flagged by the automobile sector, leading to a large number of job losses on the back of decreasing sales and shutting down of several dealerships.
According to industry insiders, the gold market in India is facing a business cut of more than 40% and this, they say, is due to the increase in the import duty on gold from 10% to 12.5% which was announced in the Union budget earlier this year.
Vijay Khanna, zonal chairman (North India) of the All India Gem and Jewellery Domestic Council, told The Sunday Guardian, “The increase in the import duty by 2.5% has led to the increase in the price of gold by more than Rs 2,000, while in the international market, the price of gold has come down. This has affected our business as people are waiting for the price to go down to buy gold.”
The increase in import duty has also led to the increase of gold smuggling and the sale of gold in the grey market, according to gold industry insiders.
“Grey market in the gold industry has increased which is hampering the business of honest gold traders. You see in the grey market the same gold is available for a lesser price of up to Rs 7,000 as there is a clear difference of 15.5% (import duty 12.5% + GST 3%). So many small jewellers are sourcing their gold from the grey market and giving huge discounts on making charges and ready-made jewellery. This has brought in an unhealthy competition,” Khanna added.
The DRI (Department of Revenue Intelligence) has also seized more than 288 kg of gold worth hundreds of crores of rupees since April 2019 and according to sources in the DRI, most of this gold that was seized was foreign-marked gold that was attempted to be smuggled into India.
Yogesh Singhal, president, Delhi chapter of the India Bullion and Jewellers Association, said that if the import duty reduction on gold is not considered by the government, black marketing and smuggling of gold will increase and honest jewellers will have to pay the price and many workers will start losing their jobs.
“If the prices do not go down in the coming days, we will have to cut down on our work force. Many jewellers have already started to do that because if there is no work, they will not pay the karigaars (workers) for just sitting idle. We demand that the government reduce the import duty on gold to 6% to bring parity with the international market,” Singhal said.
Meanwhile, the textile industry, which is the second largest employment generator and employs about 100 million people, is also facing the heat of the economic slowdown.
Cotton yarn export fell by an average 34.6% since April this year, with the lowest being recorded from July when export was down by 50%, according to the Directorate General of Commercial Intelligence and Statistics (DGCI&S).
The slowdown has also resulted in a job loss of over 30 million people as one third of the spinning mills are not functioning to full capacity and mills that run round-the-clock have limited their operations. Owners of cotton mills say that they are not in the position to buy and consume cotton due to high interest rates and high Central and state tax levies, making the yarn non-competitive in the global market.
Cotton associations say that the upcoming crop of about 40 million bales worth Rs 80,000 crore may not find any buyer both in India as well as abroad, as the prices of Indian cotton are very high compared to the global markets due to high and multiple taxations compared to cheaper cotton from Bangladesh, Sri Lanka and Indonesia.
Mukesh Singh, vice-chairman of Northern India Textile Mills Association (NITMA), told The Sunday Guardian, “The cost of raw materials are very high, the taxes are also high as all the taxes paid are not subsumed under the GST and we end up paying multiple taxes levied both by the Centre and the states; electricity duty and duties on petroleum products are some other costs that increase the price. The increase in the MSP of cotton has also led to the woes of the mill owners.”
“We urge the government to pay immediate attention to this industry as hundreds of mills are shutting down, leaving thousands of people jobless.” Singh added.
The automobile industry which is also reeling under intense pressure from dipping sales since the first quarter of financial year 2019-20 has been blaming the high GST rates, thus decreasing liquidity among people, and the reduced lending rates from the banks due to increasing non-performing assets (NPAs).
According to Society for Indian Automobile Manufacturers (SIAM), the sector has seen a decline of over 23% in its sales over the last three months—the highest in the last two decades. This has also led to a large number of lay-offs in the car manufacturing sector.
Industry members say that the future of more than 40 million employees working in the industry is at stake and GST collection by the government will also fall, as the automobile industry alone contributes about 14% of the total GST collections.
T.K. Malhotra, president of the Automobile Association of Upper India (AAUI), told The Sunday Guardian, “The government should not miss the opportunity to save the industry from plunging into a situation where its revival will be extremely difficult. The government should reduce the GST rates significantly, along with providing for a sustainable scrappage policy as the so-called existing scrap hubs are not able to handle the huge volumes of discarded cars, resulting in such cars being on the roads. In such a situation, the prospects of sales of new vehicles get diminished as motorists continue using their old vehicles as long as they can.”
“Decline in income growth and reduced lending by banks, high insurance premiums, absence of requisite infrastructure, bad roads, increasing traffic hazards, growing rate of accidents, lack of space for parking, and road rage are some of the other factors that are leading to the decline in the growth of the automobile sector,” Malhotra added.