Monday, December 7, 2015


From Business World of 8 March 2005.

Disturbing signals

When I read about jewellers’ strikes against the new 2 per cent tax on branded jewellery, my first thought was, what do you expect from them? Of course they would want to evade taxes. But there was something I could not understand. The vast majority of jewelers do not produce branded jewellery. They just craft jewellery and sell it; their customers buy it for the look, not because it is called Karishma or Asmita or some such nonsense. Why are they so het up about a tax that somebody else is going to have to pay?
So I made some enquiries; and this is what I found. This tax on branded jewellery is really targeting De Beers. De Beers is the world’s biggest producer of raw gems; India is one of its biggest markets. But in recent years its monopoly has been eroded by gems coming from Australians. The Australians also see India’s huge market. They know Golconda was once the world’s premier source of diamonds; they want to come and prospect it again with modern technology.
This got De Beers worried. So they have set up a number of brands for sale in India, and are advertising them with such powerful models as Maharani Gayatri Devi and some Bollywood actresses. That got some home-grown jewelers worried; and what better way of settling the goose of these foreigners but to enlist the formidable finance minister? So they went and persuaded him – or let us say, someone in the ministry who could persuade him – to put this 2 per cent tax. That the tax would hit Tanishq, Titan’s home-grown brand, is a bonus for its competitors, actual and potential.
But then, many jewelers also see branding as a useful weapon against these big boys. After all, what could be easier than to give your jewellery some silly name like Akanksha, put it in fancy boxes and sell it? Some people may be fooled; they may think that it is something exclusive, and may pay a few thousand Rupees more per carat. It is these small guys aspiring to get big who are upset with this tax; and they are quite numerous.
But why should they be bothered about a mere 2 per cent tax? It is not the 2 per cent that bothers them; it is the excise guys. They have long experience of those excise fellows; and all of it was unpleasant. For those were the fellows that administered gold control for 50 years; and a more corrupt lot of people was difficult to find. People are beginning to forget; but gold imports were banned from the time World War II broke out in 1939 till Manmohan Singh brought in the 5-kilo scheme in 1993. Throughout that period, India was the world’s biggest importer of gold; no one in India ever experienced a shortage of gold.
That was the achievement of those gold control guys; they ensured that gold control was smoothly sabotaged – for a price. When the explosives used in the 1992 Bombay bomb blasts were traced, it was found that a customs official had allowed them to be smuggled in for the bribe normally levied on smuggled gold. And the money was not only made on smuggling. Every once in a while, the excise fellows raided some hapless jeweler, accused him of holding smuggled gold and shake him down. The jewelers remember the tribulations of gold control days only too well, and do not want to get into the clutches of the excise fellows again.
Don’t make a mistake; these jewelers are not saying they should not be taxed. They are saying, tax us, but through someone else. For instance, place a tax on imports of roughs. Since all jewelers have to use them, they will be automatically taxed. But they will not have to come in contact with those hated excise guys to pay that tax; those sight-holders in Bombay will have to do that. That is all right with the rest of the jewelers.
The funny thing is, there was an import duty on roughs; it was removed only last year. Why? That was because most of the roughs were being imported for being cut and re-exported; at that point, they got a duty drawback. It was silly to first tax them and then to give back the tax. The government did not even bother to do that; it allowed duty-free imports under advance licensing. To encourage these exports and cut the red tape, the finance minister abolished the import duty.
That was eminently sensible. And then – the same finance minister comes up with this tiny duty with the maximum nuisance value. That is really high-minded; he is not interested in the revenue, he is only interested in making the lives of jewelers miserable.