GJEPC Seeks Cut In Import Duties On Raw Materials To Strengthen Ongoing Revival

The Gem & Jewellery Export Promotion Council (GJEPC) has urged the Finance Minister to reduce import duties on diamonds and precious metals in the forthcoming Budget 2022 to be presented early next year. 

The apex body of India’s gem and jewellery export industry said this was a key area that would help in strengthening the ongoing revival of exports from the sector. 

In November, the industry showed strong signs of recovery after the negative impact of the pandemic-induced global lockdown in early to mid-2020.  Official figures indicate that gem and jewellery exports reached US$ 2.48 billion during the month, just 4% below the USS$ 2.58 billion exported in November 2019. 

The corresponding y-o-y declines for August, September and October 2020 were much steeper, at 42%, 26% and 19% respectively. 

“Global demand in picking up and manufacturing activity in the sector is now at about 85-90% of the pre-lockdown levels,” said Colin Shah, Chairman GJEPC. “Duty reduction will boost the recovery, and help the industry, which is already a mega-employer, to generate additional jobs.”

Cumulative exports for the first eight months of fiscal 2021 at US$ 11.4 billion are still a whopping 44% below the previous year’s levels, and the industry leaders said it will require different types of measures, particularly on the duty front, to aid the return to pre-Covid levels.

Currently, effective levies on imports stand at 7.5% for cut and polished diamonds and at 12.5% for gold, silver and platinum. These were impacting the global competitiveness of the Indian industry and could become obstacles to the further expansion of local units manufacturing for the world markets, Shah explained.

Moreover, the duty structure for diamonds which was raised from the then prevailing 2.5% to 5% in February 2018 and then 7.5% in September that year, was much higher than the rates in other key centres such as Antwerp and Israel. 

“India is the undisputed world leader in diamond manufacturing, accounting for over 92% of global production and we want to further consolidate by establishing the country as a global trading centre,” explains Vipul Shah, Vice Chairman, GJEPC. “This will be difficult as long as the cost of importing polished diamonds remains high.”

According to GJEPC, the increased duty rates on diamonds actually had a negative impact on tax collections, which fell from Rs 30.7 crore during the lower rate regime pre-2018, to Rs 24.59 crore presently. “The overall amount collected is small in any case, and hence there are hardly any significant revenue implications in returning to the lower level,” Shah averred.

Though gold impacts India’s overall import bill more significantly than diamonds, the time is opportune to relook at the high rates that were imposed when deficits had reached alarming levels some years ago. “The CAD position is better now and global oil prices are low,” said the GJEPC chairman.

He also referred to the NITI Aayog report on Transforming India’s Gold Market which has pointed out that high duties have encouraged routing of imports through countries with which India has an FTA, and also boosted the unofficial market. 

Many exporters also face a problem as large amounts of working capital remain blocked pending duty refunds for exporters. “An estimated Rs 700 crore would be freed if the duty rates on precious metals for exports were to be reduced to 4% from the current 12.5%,” Shah noted.

Another key issue raised by the industry concerns the Online Equalisation Levy of 2% on e-commerce imports introduced by the government recently. GJEPC has urged the FM to exempt international B2B diamond auctions from this tax. 

“Though these auctions are conducted through an online interface, it should be clarified that they should not attract this levy as they are mainly a raw material for exports,” Vipul Shah said, adding, “In the absence of official clarity, large miners are amending contracts with their regular Indian clients to cover this levy, while many others are barring Indian firms from taking part in B2B spot auctions.” 

Similarly, the industry has also urged the government to remove the 0.5% Basic Customs duty on import of rough coloured gemstones, pointing out that converting these rough goods into polished gemstones gives an 8-10% yield, rendering stones manufactured in India 5% costlier in the world markets.

The industry body also called for an amendment to the tax provisions to allow direct sale of rough diamonds in the Special Notified Zone in Mumbai through the introduction of a turnover linked tax similar to that levied in other global centres.

The GJEPC has also urged the government to help it in strengthening manufacturing infrastructure. Key aspects of this include extension of the scheme for building Common Facility Centres (CFC) by a further 5 years; approval and appropriate budgetary allocation to set up Mega CFCs in key jewellery manufacturing clusters and a Technology Upgradation Fund (TUF) scheme for the G&J sector.

In its recommendations, the trade body has also suggested exemption of certain intermediate, semi-finished components used by the jewellery exporters from import duties. “Often overseas clients specify the standards and norms for such components which cannot yet be achieved by domestic manufacturers; charging duty on these imports pushes up costs, or affects margins,” the GJEPC said. 

The final set of recommendations concern the imitation jewellery segment, which currently has only a small presence in exports, but has huge potential, and could become a major employment generator. The GJEPC suggests a slew of measures, principally focused on setting a minimum price for imports and increasing duties on select import materials to protect and strengthen domestic manufacturers.