SEZs lose jewellery business to units outside, blame 80:20 rule

Last Updated: Thu, Jul 31, 2014 11:06 hrs

Special Economic Zones (SEZs) dedicated to jewellery manufacturing and export have steadily lost a major chunk of business to units outside (termed the Domestic Tariff Area or DTA).

The trade says the government rules favour gem and jewellery export outside export zones.

Data compiled by the Gems and Jewellery Export Promotion Council (GJEPC) showed gold jewellery exports from DTA shot up by 173 per cent to Rs 6,974 crore in the first quarter of the current financial year, compared with Rs 2,553 crore in the corresponding quarter last year.

In contrast, shipment of gold jewellery from SEZs and export processing zones (EPZs) slumped by 29 per cent to Rs 4,702 crore in April–June, compared with Rs 6,603 crore in the same period last year.

"Since introduction of the 80:20 rule (whereby a fourth of jewellery export value would be made available for domestic sale), gold supply for the DTA has been restricted. Because jewellery manufactured in SEZs attracts 15 per cent duty, equivalent to import duty, on selling to DTA, jewellers prefer to execute all trades from DTA. However, jewellery meant purely for exports would continue to be manufactured in SEZs just to keep employees engaged," said Pankaj Parekh, vice-chairman of GJEPC.

Not only export but also import of cut and polished diamonds into SEZs recorded a steep decline in the first three months of the current financial year, indicating a shifting of business to the DTA. During the first quarter, import of cut and polished diamonds into SEZs fell 77.5 per cent to Rs 1,609 crore. compared to Rs 7.154 crore in the corresponding period last year, showed data compiled by GJEPC.

In the same quarter, import of cut and polished diamonds jumped a staggering 321 per cent to Rs 6,969 crore, compared with Rs 1,654 crore in the comparable period last year.

"Most companies in the SEZs have some retail activity that is done from their factories in the DTA. Due to the 80:20 rule, they are forced to do export out of their DTA units. Therefore, DTA exports have gone up, while SEZ exports are appearing down," said Rajeev Sheth, chairman and managing director, Tara Jewels.

Jewellers expect the trend to continue until the government changes gold import guidelines and makes the yellow metal available adequately to domestic players. "This is a fallout for SEZs,' said Sabyasachi Ray, executive director, GJEPC. "The government must relax the 80:20 rule immediately to prevent SEZ business from further fall."

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