The India Diamond Trading Centre (IDTC), the country's first-ever Special Notified Zone (SNZ) for trading in rough diamonds, was opened by Minister of State (Independent Charge) for Commerce & Industry, on Sunday, December 20 within 12 months of the policy being announced by the Prime Minister at the World Diamond Conference held in December 2014.
IDTC, which is within the Bharat Diamond Bourse (BDB) premises in Mumbai, is a 50:50 SPV set up by The Gem & Jewellery Export Promotion Council (GJEPC) and Bharat Diamond Bourse (BDB) for overseeing operations of the SNZ. It has the potential to not only give a major boost to India's existing diamond manufacturing sector, but can also trigger a process of realignment in the global diamond industry itself.
For more than a few decades now, India has been the world's largest centre for cutting and polishing diamonds. This segment exports around US$ 18-20 billion annually, accounting for an estimated 65 per cent of global diamond manufacturing in value terms, and a whopping almost 85 per cent in terms of volume. Yet, the raw material that feeds this mammoth industry has never been available easily.
While diamonds are mined mainly in Africa, Russia, Australia and Canada, India's regulatory framework was not conducive to the rough diamonds being sold directly to the manufacturers here. The sheer size of the industry did force some change over the last decade, but just 10 per cent of the required rough came directly to India; the remaining had to be purchased by Indian companies from London, Botswana, Antwerp, Hong Kong, Dubai etc.
With the establishment of the IDTC, all that is now set to change. Miners who sell diamonds through auctions and tenders, can now bring their goods for viewing in India without incurring any tax liabilities, provided the subsequent sale transaction takes place overseas. Not only will rough diamonds now be more easily accessible to Indian companies and the related transaction costs reduce; but, more importantly, enterprises in the SME sector will henceforth be able to interact directly with miners.
The world's three major diamond mining companies - De Beers, Alrosa and Rio Tinto, who together account for nearly 90 per cent of world diamond production, have indicated their solid support for this initiative of the Indian government. Not only were senior representatives from these companies personally present at the opening, they also spoke in glowing terms of the facilities that existed and the advantages that the IDTC offered them, based on the test viewing programmes each had held in the month before the formal opening. Te IDTC gives them more direct access to a far wider base of potential clients than in the past.
The model in itself looks set to succeed, with bookings having been received till December 2016. Besides the three majors, some of the medium and smaller miners have also taken steps to use the IDTC facilities.
Yet, positive as this development is for the Indian diamond industry, at present, the IDTC is still some stages away from becoming a proper trading centre, which is what the name suggests it should be. The major hitch, it appears lies with the present taxation framework and its implementation.
Speaking at the inauguration, Praveenshankar Pandya, Chairman of GJEPC said that the industry had been discussing this issue with the government and was hopeful that the presumptive taxation system that they have been proposing for some time will be accepted in the forthcoming budget, and that the rates and structure of the tax regime will take into account the actual realities of the industry which is based on high volumes but low margins.
Such a system will bring India on par with other countries such as Belgium and Israel where trading in rough and polished diamonds currently takes place. At the same time it will also create remove any uncertainties in the minds of the miners regarding the costs of bringing their good directly to India for sale.
GJEPC has already indicated that this model can be replicated in other parts of the country as well, particularly Gujarat where diamonds are manufactured, and even in other segments of the gem and jewellery industry such as the coloured gemstone manufacturing centre in Jaipur.
The industry will clearly be waiting keenly for such a policy pronouncement in next year's budget.
Columnist
He has been a journalist since the mid-1980s, and has spent close to two decades tracking the gem and jewellery industry while holding different editorial positions in industry specific publications and websites
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