The Indian government has announced a significant reduction in the gold duty drawback rate on August 23, 2023, just weeks after revising the import duty on gold and silver. This revision is crucial as it directly impacts the gems and jewellery sector, a key contributor to India’s export economy.

Revised Gold Duty Drawback Rates: The new notification reveals that the duty drawback rate for gold jewellery has been reduced from ₹704.1 per gram of net gold content (with a purity of .995 or more) to ₹335.50 per gram. Similarly, for silver jewellery and other silver items, the rate has been slashed from ₹8,949 per kilogram (.999 purity) to ₹4,468.10 per kilogram. This adjustment ensures consistency in rates across silver products and reflects the recent changes in import duties.

What is Duty Drawback? The duty drawback is a refund provided to exporters for the customs duties paid on imported inputs. It ensures that the domestic taxes do not impact goods meant for export. These rates are typically adjusted in response to changes in import duties to maintain balance and fairness in the reimbursement process.

Budget 2024 Announcements: The recent reduction follows the announcement made by Finance Minister Nirmala Sitharaman during the Budget 2024 on July 23, where she proposed reducing the customs duty on gold and silver to 6%. The customs duty on platinum was also reduced to 6.4%. These measures were aimed at enhancing domestic value addition in the jewellery sector and reducing gold smuggling. However, the gold duty drawback rate was not adjusted during the budget presentation, potentially leading to higher reimbursement rates for exporters on cheaper raw materials. The latest revision addresses this discrepancy, ensuring that exporters are compensated accurately based on current import costs.

Impact on the Industry: The sharp reduction in the import duties on gold and silver is expected to free up blocked funds for businesses involved in gems and jewellery. Gold, being the primary raw material for this industry, plays a crucial role in determining profitability. According to Sanjay Agarwal, Chairperson of the Central Board of Indirect Taxes and Customs (CBIC), the reduced duties will also help in curbing illegal gold imports and channel funds back into the formal sector.

Growth in Gold Imports and Exports: India's gold imports have seen a substantial rise, growing from $33.6 billion in FY 2019 to $48.8 billion in FY 2024, a 45.2% increase. Concurrently, gold exports have also surged, from $6.59 billion in FY 2021 to $13.24 billion in FY 2024. This growth underscores the importance of maintaining a balanced and fair duty drawback system, ensuring that the gems and jewellery industry remains competitive on the global stage.

As the industry adapts to these changes, the new duty drawback rates will play a crucial role in shaping the export landscape, influencing pricing strategies, and ultimately affecting India’s position as a leading exporter of gold and silver jewellery.

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