WILL GST IMPACT CONSUMPTION OF GOLD OR CURB IMPORTS?
economy was also an attempt to curb cash transactions in the country and thereby stem generation of black money. Further, GST has been introduced to make all transactions virtually online with stringent compliance measures, thereby trying to make it very difficult for the trade to make adjustments towards the end of the year or under- or over-invoice their transactions.
The intentions are very noble and laudable to make India free of corruption and black money. However, the implementation leaves a lot to be desired. The premise is that the informal, unregistered or small and medium sectors or the cottage industry are not wanted. They have virtually no place in the system.
Last year, the imposition of 1% excise duty as well as demonetisation saw gold consumption and import of gold fall quite sharply. So, will GST also impact gold imports as well as cause a decline in consumption of gold? Since, there is no sign of disruption of business in the jewellery trade so far, the consumption of gold would be based on the normal factors that impact it. However, there is a possibility that the gold consumption numbers could show an increase as reporting improves. A better tracking system – matching every input with the final output – could make it difficult for the trade to be unofficial. Moreover, one does not stop doing business just to avoid paying taxes. But, there could also be instances where sections of the trade go completely under the radar. However, it may not be as easy as before and it could lead to some players quitting the bullion trade altogether. It can take some time before one can make an estimate based on the above factors.
Likewise, henceforth, cash has very little role to play in the economy. However, the fact is that agricultural income is tax free. And successive governments have actively encouraged the cottage industry and the small to medium enterprises. They deal mainly in cash. True, all these facilities have been misused by bigger players masquerading as small players or farmers. But, they have the resources and connections to circumvent the system even now.
Even demonetisation somewhat failed in its stated objective of flushing out black money. Although it almost got all the money back with the banking system, it could not write off any significant liabilities. Moreover, the Jan-Dhan accounts meant for the poor in rural and urban India were misused by the rich and powerful in the country. The ones who were to benefit from these bank accounts were the ones who bore the brunt of the hardships caused by demonetisation.
The government appears to be determined to curb consumption of gold, particularly as an investment option. The modern economic thinking that gold is a dead investment appears to be firmly ingrained in the bureaucratic mindset. The same thinking had seen the imposition of the obnoxious Gold Control Act that was in vogue from around 1962 to1990. This Act was repealed in 1990 by