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Higher customs duty to aggravate volume pressure
March, 29th 2012

Higher customs duty on gold will increase pressure on volumes going forward, says chief financial officer of Titan S Subramanian. "Volumes declined significantly in the last two quarters largely due to high gold prices, and the hike will now contribute a little more to that," he said in an exclusive interview to CNBC-TV18.

Finance Minister Pranab Mukherjee had proposed a hike in customs duty from 2% to 4% in the Union Budget 2012-2013, a move which could have a huge impact on demand for gold in India.

Another Budget proposal which will also impact demand for products is the tax at source for purchases over Rs 2 lakh. "However, the tax collection at source requirement is something which kicks off from July 1, not immediately, so the impact of that needs to be seen," said Subramanian.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Give us one word on how you would quantify the impact of the changes in the Budget with regards to whether you expect a slippage in volumes or demand for Titan?

A: Yes, I think there would definitely be an impact on volumes everywhere. You have seen volumes decline significantly in the last two quarters across the industry largely due to high gold prices and volatility as well. Increase in customs duty from 2-4% will now contribute a little more to that, so I think volumes have been under pressure for quite some time.

Ofcourse the tax collection at source requirement is something which kicks off from July 1, not immediately, so the impact of that needs to be seen. Having said that, the Finance Minister has said that he is relooking at some of the Budget proposals, so we need to wait and see what the final outcome is going to be. But volumes are clearly under some pressure now in the industry.

Q: How material could his tax collection at source for purchases higher than Rs 2 lakh be for a player like Titan? Apprehension is that a lot of people might start moving to unorganized players for cash purchases, do you see that as a legitimate possibility?

A: You cannot rule that out, it is going to be significant for companies like ours. Our diamond sales proportion of total sales is almost 30%, which means a lot of jewellery will come under this bracket and there will definitely be an impact. There has already been an impact on sales over Rs 5 lakh, it is not very material though but there could be an impact on this as well.

Having said that, it is also our responsibility to educate our customers to ensure that we comply with the law, which means we might have to tell them how to have different means of payment which is cheques, drafts, credit cards, installment schemes whatever. We have to look at educating our customers so that we can comply with the law at the same time work on sales.

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