The Finance Minister who is currently busy with preparatory work for the Union Budget scheduled to be presented to the parliament on July 3 is sure to find budget-making a tough exercise simply because his degrees of freedom in terms of generating more revenue for funding expenditure under various heads are rather limited.
While there can be no major compromise on the expenditure component because of rising expectations of people who have voted the government to power and political compulsion to fulfil poll promises, the Finance Minister is sure to find the going tough.
Plea to cut taxes
Most of the goods and services are already taxed heavily.
In fact, there is a demand for reduction of the tax burden.
No many avenues are left for revenue generation, especially in the commodity space. Import of most commodities is duty-free or at a nominal rate.
If there is one major commodity that can bear the burden of additional tax, it is gold.
Currently, customs duty on imported gold is a paltry Rs 100 for 10 gm or Rs 10,000 a kg.
The rate was fixed almost four years ago when the market price of gold was around Rs 5,000 for 10 gm. Prices of the yellow metal have spurted sharply in last two years because of global market cues and unabated domestic demand.
Gold Imports
Currently, gold is trading at anything between Rs 14,500 and Rs 15,000/10 gm or nearly three times the price that prevailed four years ago when the import duty of Rs 100 was fixed.
There is strong case for a hike in import duty on gold to at least Rs 200/10 gm.
It will generate revenue of Rs 1,200 crore for the exchequer, assuming India imports about 600 tonnes of gold. Raising the import duty to Rs 200 will hardly hurt consumers as anyone who can afford to pay Rs 14,500 can easily pay Rs 14,600/10 gm or Rs 100 extra.
The benefits of fixing the duty higher are enormous.
The governments revenue would double from the present Rs 600 crore to Rs 1,200 crore, considerably easing the revenue concerns. It would not hurt consumers either. Of course, as usual, traders may raise objection; but they deserve to be set aside. One of the diversionary arguments that is sure to be advanced by vested interests would be that a higher rate of import duty would encourage smuggling. Nothing can be further from the truth. A hike of Rs 100 is too insignificant to motivate anyone to smuggle gold given the extraordinary risks involved. However, the Finance Ministry should not stop with merely collecting higher revenue by hiking the customs duty. A part of the additional revenue should be earmarked and spent on improving the working conditions of nearly 4-5 lakh small goldsmiths and artisans. Their working conditions are pathetic. Health problems are the norm. There is little training. All these must change. The Government should come out with a plan for providing insurance facilities to small goldsmiths and artisans.
Appropriate medical services for them are absolutely essential.
Training centres would enhance their skills.
These services are not going cost heavily. To start with at least one per cent of the customs duty on gold imports should be earmarked for improvement of jewellery making and trading conditions, targeted at small players who are tradition bound. It will help preserve traditional skills.
Across the country, we find clusters of activities relating to precious metals - Zaveri Bazaar in Mumbai, and markets in Belgaum, Rajkot, Kolkatta, Jalgaon and so on. These should be targeted.
Echoing the sentiment, Mr Bhargav Vaidya, well known bullion expert and analyst, said for too long we have ignored the plight of poor artisans and small goldsmiths. It is time for the government to return the favour because the gold market has generated huge revenues over the last 12 years.
There is voracious appetite for gold in India, because of rising incomes. There is also enormous amount of speculative activity in the gold market. But there is hardly any attention paid to several lakhs of small players who actually contribute to making gold jewellery demand a reality. They need official policy support and the sympathetic ear of the new Finance Minister.
Source : Business Line