Qualms About Concession

India and Thailand have always been known to be allies of each other in business and growth. This can be vouched for by the signing of the Free trade Agreement between the two countries in 2004, which included gold jewellery amongst other products. But, with India’s escalating current account deficit due to large imports of gold jewellery, depleting precious Forex and endangered Indian jewellery artisans, this concession treat is about to get suspended, reports Priyanka Desai.

In April 2004 Thailand and India had signed a Framework Agreement for establishing an India-Thailand Free Trade Agreement under which an Early Harvest Scheme comprising few items like gold jewellerywere available for concessional trade. Gold jewellery was also applicable for concessional trade between the two countries as Thailand is also a part of ASEAN-India Agreement on Trade in Goods.

But on the wake of increasing import of gold jewellery from Thailand and the high current account deficit, the Indian government has advised the Department of Revenue to suspend preferential import of gold jewellery with identified tariff lines from Thailand. This move follows doubts and concerns raised over the accuracy of information appearing on the Certificates of Origin issued by Thailand under the Early Harvest Scheme. Minister of State for Commerce and Industry D Purandeshwari has written a reply to the RajyaSabha that the suspension holds until there is a retroactive check of Certificates of Origin by Thailand.

“In view of the increasing import of gold jewellery from Thailand, the Department of Commerce has asked the Department of Revenue to issue a notification suspending the import of gold jewellery from Thailand under the provisions of the early harvest scheme, till the certificates of origin issued by Thailand are verified to our satisfaction,” said an official statement.

Under the Early Harvest Scheme gold jewellery is imported from Thailand to India at a duty of one per cent. This concession is obtainable only if the jewellery has value addition of at least 20 per cent before it is brought to India. The government believes the norm for value addition is not being obeyed. To avail of the concessional Customs duty, gold jewellery from China and Malaysia, which has a high customs duty of six to 10 per cent, is often imported through Thailand.

There have been talks about how gold imports have raised India’s trade deficit. For April-January, trade deficit stood at a high of $167 billion. This burdened the current account deficit, which stood at a record 4.6 per cent of gross domestic product (GDP) in the first half of the financial year, against four per cent in the year-ago period.

Ajay Sahai, director general of the Federation of Indian Export Organisations, said, “Gold prices in India and Thailand stood at Rs 30,000 for 10 gm. If there was value addition of 20 per cent, the price would rise to Rs 36,000. However, gold jewellery is being imported at Rs 31,000 for 10 gm. If the gold is imported from China, six per cent duty stands at Rs 1,860; if it is imported from Thailand, tax of one per cent on 10 gm of gold jewellery stands at Rs 310 and the arbitrage is about Rs 1,500.”

The arbitrage augmented after the government had increased Customs duty on standard gold bars and jewellery to six per cent in December. This was aimed at reducing gold imports. In Union Budget 2012-13, the rates were doubled to four per cent and 10 per cent, respectively.

During April-November, 2012-13, imports of gold jewellery from Thailand stood at $92 million, against just $13 million in 2011-12, said Sahai. About $72 million of the $92 million was recorded in October-November.

India has already informed Thailand that it would levy six to 10 per cent duty on gold jewellery imports from that country, as is applicable to other countries, against one per cent proposed in FTA. It has added it wouldn’t allow gold jewellery imports at concessional rates.

“Negotiations on the FTA are still going on. We have taken up the issue with Thailand. We believe duties have to be consistent with our domestic policy. But we are definitely not going to impose a ban on its import. The response from Thailand is awaited,” said an official.

AtulJogani, Vice-Chairman, Thai Gems and Jewelry Traders Association (TGJTA) said, “Suspension of Free Trade Agreement(FTA) between India and Thailand on jewellery is not because of any wrong doings or misuse of the scheme from Thailand. The total export of gems and jewellery to India from Thailand is approximately USD 330 million, out of only USD 117 constitutes of jewellery. It is a very small figure in comparison to total jewellery import in India. Local press in India has exacerbated on figures and has put Thailand's name in bad way. I agree that there might be a few black sheep who might have tried to misuse these schemes but the figure is too tiny to suspend it forever. Thailand plans to come to India very soon to talk to India Authorities and explain everything in detail.”

The Gems and Jewellery Trade Federation (GJF) have expressed their appreciation for the Government’s plan to remove Gold imports from Thailand under the Free Trade Agreement.BachhrajBamalwa, Chairman, GJF said, “Realising how gold is an area of focus for the finance ministry, we appreciate this decision of the Finance Ministry will help India overcome the balance of trade position”.

Sanjay Kothari, Former Vice-Chairman of Gems and jewellery Export Promotion Council (GJEPC) opined, “We need to protect our Indianartisans who are employed through generations in the jewellery making business. If, we continue importing Thailand-made jewellery at such a consessional rate, our artisans will soon be jobless. Thailand jewellers have not followed the norms of 20 per cent value addition thus we are in agreement to the government’s plan of suspension of FTA between India and Thailand on gold jewellery. In Thailand, we do not have any access to sell Indian jewellery and we cannot be in an agreement with a country where we cannot sell our own jewellery.”

Rajiv Jain, Former Chairman of the GJEPC said, “We are not at all against the business in Thailand. On the contrary, they are most welcome to come and sell their jewellery here but only and if only they follow the norm of 20 per cent value addition. Thailand does not produce its own gold then how does it manufacture somuch jewellery to export it to India? Are all the jewellery pieces actually made in Thailand or are they made in China or Malaysia and routed through Thailand to India to avail the concessional duty? These are important questions. All that the Indian government and we are doing is protecting our industry and most importantly our artisans, here. And, I am sure if Thailand were in our place, they would have done the same thing. If, Thailand manufactures and exports coloured gemstones studded jewellery or invisible stone setting jewellery where the skills are used resulting in value-addition, we are more than happy for Thailand to continue business with India, the way it was.”

It is a known fact that there are many Indian-origin jewellerymanufactures in Thailand who will be scathed owing to this decision, some of them who are already feeling the brunt. We spoke to one the most well known names in the Indian and Thai gems and jewellery industry, Ashok Sakariya of H.V. Jewels. Sakariya informed us that he does not believe that the Finance Ministry of India is any mood to resolve the FTA issue. “Thailand has very good and cheap labour which was one of the reasons why many jewellerymanufactures from India shifted to Thailand. These skilled workers add more than 20 per cent of value addition in the jewellery. Our company adds more than 25 per cent of value addition in jewellery but since past few months we have completely stopped our export to India as the customs department do not qualify even 25 per cent of value addition in the jewellery and charge high duties. We are planning to move our Thailand workforce to India as we already have infrastructure ready there. Now, all the products that were made in Thailand by H.V. Jewels will be made in India thus evading this burning issue of suspension of FTA.”

Praveen Lodha of Smart Arts Jewellery is yet another renowned name in the industry but he had a different opinion. He opined, “It is too early to comment on this topic right now as the matter is under negotiation. Both the governments are very serious to resolve this issue as it is in everybody’s interest. As it is a Government matter, it will take time but I am sure that it will get resolved. In the month of April, Indian team is coming to Thailand for negotiations and only after that meeting we will get a clearer picture. There are a lot of Indian origin companies in Thailand and these too will participate in the negotiations. We can only hope for the best.”

Salil Shah of DiamrusaFine Jewelry also threw light on this issue. He concurred with Lodha’s point of view and said that it will be not right for him to comment on this topic in an individual capacity as the matter was now between the two governments. He further added, “Shipments under FTA were having problems since last one year and they were not cleared for weeks at a time. So we were reluctant to accept orders from our Indian clients. Our exposure to Indian market is less than ten per cent of our total turnover. In fact, whatever pending shipments we had, our clients in India have imported them by paying duty as they probably had their further commitments. We are targeting Indian market in longer perspective. Therefore, we will wait and watch the outcome of negotiations. Also, FTA means free trade between two countries. It is not just jewellery or other selected products exported to under FTA to India only, there are other products exported from India to Thailand under FTA, too. So it will be mutually beneficial for both parties to resolve this issue as long as proper guidelines are followed.”