Each year, as the Budget approaches, Indian consumers often hold off buying high-value items, hoping that taxes will be lowered and their purchases will become cheaper. This is especially true of gold and silver jewellery, since the government has regularly lowered the import duty on these metals over the years.

This year too, it was anticipated that the import duty on gold would be cut from 10% to 4%. However, Arun Jaitley held out a rude shock. The government not only kept the duty intact, it also levied 1% excise duty on gold and silver jewellery, alarming both consumers and well as those in the jewellery trade.

As a result, almost three lakh jewellery shops around the country have gone on strike. In some places, the strike will last for three days, though it started at different times. In Mumbai’s Zaveri Bazaar, the India Bullion and Jewellers Association has gone on an indefinite strike.

Many in the trade claim that the new levy threatens the very existence of the $40 billion industry, which provides a livelihood to lakhs of artisans and jewellery traders across the country.

Here are answers to some essential questions about the situation.

Why is the Modi government after India's gold?
The Modi government has showed remarkable dexterity in attempting to get gold – a largely unproductive asset – out of people’s closets by launching gold monetisation schemes. The idea was to put the gold to good use to fund businesses while giving people interest on their idle jewellery.

This time, however, the government has a different objective. By imposing a 1% excise duty on jewellery, the government has effectively brought the whole sector under the tax net.

How much difference could a 1% tax make to people’s purchasing decisions?
Jewellery is classified by economists as an ostentatious good, meaning that demand rarely moves in relation to increase in price. As a result, even this additional tax may not deter gold-loving Indians from buying jewellery.

The current protest by jewellers, however, doesn't only reflect their view about the 1% excise levy but also the disappointment that the government did not reduce the import duty.

Who is getting a rough deal here? Customers or jewellers?
Both. Jewellery associations complain of apathy from the government when it comes to their business. Jewellers complain that their business has reduced by as much as 25% to 30% ever since the government in December made it mandatory for buyers to furnish their PAN numbers while buying jewellery worth more than Rs 2 lakhs.

The imposition of excise will mean a lot more paperwork for those in the trade, collection arrangements will have to be made and there will be more pressure of tax compliance.

For customers, this will mean increased prices. Traders will find a way to pass the excise burden to customers.

What is the government’s justification for this move?
In one word: revenue. The government, in its budgeted revenue estimates for the upcoming year, has projected its gross tax revenue will go up by 11%. This means that it will try and scoop up every last penny it can. Jewellery demand in India is massive and even a 1% excise increase is sure to provide a substantial amount of money to the exchequer.

Moreover, the Central Board of Excise and Customs has justified the move by saying that the sector contributes to accumulation of black money in the economy and needs to be brought under the tax net.

“We have brought jewellery (sector) into the tax net. This is the levy which we had attempted two years ago and withdrawn... This is the sector which you will agree with me needs to be brought into tax needs,” said Najib Shah, chairman of the board. “This is a sector which lends itself to generation of unaccounted wealth."

So, when do customers buy jewellery again?
It depends where they are. The three-day strike started on different days around the country. Tamil Nadu’s jewellery associations started their strike on Wednesday and is expected to go on till Friday. Mumbai’s Zaveri Bazaar has been shut since Tuesday and it is on an indefinite strike. But there are many small traders around the country who might not be observing the strike at all.

The Gems and Jewellery Trade Federation is expected to meet the ministry officials on Friday to express its concern over the new measures.