Excise levy to take sheen off emerging brands

Buying jewellery became that much difficult with finance minister P Chidambaram slapping a two per cent excise duty on branded jewellery in the Union Budget 2005-06.

The Budget has certainly put roadblocks in the path of the emergence of brands in the Indian gems and jewellery industry, which was expected to take over the local markets with competitive pricing and catering to local tastes.

"The two per cent excise duty imposed by the finance minister will not only hit the branded jewellery segment, but will also have an adverse impact on the industry as a whole. The finance minister's decision will marginalise all our efforts to put the industry in good shape," said Bakul Mehta, chairman, Gems and Jewellery Export Promotion Council (GJEPC) on Tuesday. He reacted sharply to the much-appreciated budget of Chidambaram.

The US abolished duty on jewellery imports from India last year, which has contributed a great deal in the growth of the Indian jewellery industry. But the government's decision to levy duty on the branded jewellery manufactured in India has been criticised by the industry.

GJEPC is planning to make representations to the finance minister seeking withdrawal of excise duty on branded jewellery.

"It was very unfair to levy excise duty on branded jewellery, especially when the sector is emerging and yet to mature. The minister could have waited for some more time to impose the excise duty. The end user will have to bear the additional cost," said Rajesh Mehta, chairman of Bangalore-based Rajesh Exports Ltd, India's largest player in the gold jewellery market with a turnover exceeding Rs 3,000 crore.

The company is planning a foray into the US $60 billion worth of branded diamond jewellery market.

The ratio of unbranded to branded jewellery sales has changed from 95 per cent to five per cent earlier, to 90 per cent to 10 per cent in the last two years with the launch of over 28 brands. The branded jewellery industry is expecting to take over the domestic regional players in the next five years.

"The two per cent excise duty levied on branded jewellery will add up to the cost and will have an adverse impact on the industry in the long run. At present, we are working on the cost component," said Manoj Subramanian, marketing manager, Ishi's Jewellery, a division of Suashish Diamonds Ltd. The company aims to promote Ishi's as an international brand by enhancing its global presence.

Of the Rs 50,000 crore Indian jewellery industry, diamond jewellery constitutes only 20 per cent.

While the share of the branded ones is only pegged at around 10 per cent at around Rs 1,000 crore, which is expected to grow at a compounded annual growth rate (CAGR) of around 25 per cent to cross Rs 6,000 crore in the next five years, surpassing the unorganised diamond industry, which is expected to grow at the CAGR of 10 per cent.

"The branded jewellery industry will be adversely affected by the decision to levy the excise duty. The finance minister should have announced incentives to encourage the jewellery industry, but on the contrary, it has imposed duty on it, which is a wrong move. The decision will not only result in an increase in prices, but also lead to other problems such as increase in paper work, that would give rise to corruption," said Chinu Gajera, of Cygnus Diamond Jewellery, Surat.

The branded jewellery segment in India mainly comprises of diamond manufacturers, who are planning to begin their own retailing operations in with own brands. In the last few years, the market has been dominated by such brands as Nakshtra, Gili, Tanishque and Ishis among others.

However, there has been an increase in the number of branded jewellery players and the market is getting flooded with competitive brands with over 28 brands seeing light of the day in the last two years.

"The branded jewellery industry is in a nascent stage in India, and needs to be nourished. Several leading diamond houses are diversifying into the branded jewellery sector by making huge investments. Under these circumstances, the government should have announced steps to give a push to the sector, but it has decided otherwise, and imposed duty. The costing of the branded jewellery is much higher than the non-branded jewellery. The excise duty, which simply means taxing the quality of jewellery, would only widen the gap, and hurt the branded jewellery sector," said Pravin Nanavati, a leading figure in the gems and jewellery industry.