GST reforms and jewellery industry. Change or farce?
On September 3rd, during the 56th meeting of the GST Council, the nation waited with bated breath as sweeping changes to the Goods and Services Tax were announced, a pivotal moment in India’s evolving indirect tax landscape.
The verdict brought mixed news: essential goods and daily-use items saw a welcome reduction in tax rates, complex multi-slab structures were streamlined into just two main slabs of 5% and 18%, and luxury as well as sin goods faced a steep hike to 40%, triggering reactions across every sector.
While these reforms promised simplicity and relief for households and MSMEs, they also introduced challenges, and the gems and jewellery industry too found itself affected—let’s explore how.
Dissecting GST Reforms for Gems and Jewellery Industry
Image source - https://www.instagram.com/truediamond.official/
The recent GST reforms, announced on September 3rd, have had a complex impact on India’s gems and jewellery industry, with both positive and negative implications.
Although expectations of tax relief were high, the GST rate for gold and silver jewellery ultimately remained unchanged at 3%. Many in the industry had anticipated a reduction in GST or input costs to enhance affordability and boost demand, especially with the festive season approaching, a key period for sales. However, the sector was exempted from the broader GST reforms, leaving existing rates intact. The absence of such reductions means jewellery may remain less affordable for some consumers, potentially limiting the expected surge in festive purchases and keeping overall consumption growth modest in the short term. As Rajesh Rokde, chairman of the All India Gem and Jewellery Domestic Council (GJC), clarified: “The current GST reforms (GST 2.0) offer no direct and immediate relief to gems and jewellery exporters. Importantly, the gems and jewellery sector was excluded from the latest reforms. The reforms do not offset the adverse impact of the US tariffs, since input costs and compliance burdens remain unchanged”.
On the bright side, some analysts believe the reforms will slowly benefit consumers through increased disposable income. Avinash Gupta, GJC Vice Chairman, expressed optimism, stating, “With the rollout of next-gen GST reforms, we believe, consumers will experience a tangible increase in disposable income, thanks to the effect of income tax relief and reduced GST rates”. This boost in disposable income is expected to lead to a surge in spending, especially as India gears up for a series of festivals, which traditionally drive jewellery purchases, including gifts, special occasions, and bridal jewelry. As consumers find themselves with more spare money due to the reforms, a growing segment may channel this additional disposable income into purchasing luxury jewellery not just for adornment but also as an alternative investment.This shift represents a nuanced change where jewellery becomes a form of cultural expression while simultaneously serving as a financial asset,reflecting evolving consumer priorities in India’s dynamic market.
Significant positive adjustments were made in specific areas, such as the exemption of small diamond imports of up to 25 cents from the 18% IGST, and the reduction of GST on jewellery boxes from 12% to 5%. Kirit Bhansali of the GJEPC highlighted that these reforms would lower operational costs and boost domestic demand by making packaging and gifting more affordable.This reduction is likely to benefit both buyers and sellers, as lower costs can be passed onto consumers, encouraging more purchases during the festive season.
How Does Redefining India’s Gems and Jewellery Landscape?
The GST reforms represent a nuanced shift rather than a sweeping overhaul for the gems and jewellery sector. While the industry missed out on anticipated direct tax relief on gold and silver, key segment exemptions and allied reductions offer operational ease and incremental benefits. The reforms reflect a broader balancing act between safeguarding government revenue and stimulating consumption, placing the industry at a crossroads. The unchanged GST rates maintain stability but also underscore the continuing cost pressures and affordability challenges for many buyers. Yet, the indirect boost to disposable income from the wider tax changes may foster healthier demand during peak seasons.
Beyond domestic effects, these reforms also interact with global macroeconomic factors. The anticipated rise in private consumption could help cushion the Indian economy against external shocks such as tariff pressures and geopolitical tensions. Improved domestic demand may boost corporate profitability and encourage private sector investment, reinforcing economic resilience. However, the fiscal impact of revenue losses from GST cuts requires careful management to maintain macroeconomic stability.
Thus, the reforms signify a cautious but strategic step, offering some hope for industry growth while navigating complex domestic and global economic realities, leaving the gems and jewellery sector poised to adapt amid evolving consumer behaviors and uncertainties.