Even as 90 per cent of the world’s rough diamonds comes to India for cutting and polishing, the recent spurt in imports of cut and polished diamonds has worried the domestic industry.
According to Gem and Jewellery Export Promotion Council (GJEPC) data, in the current financial year till January, India exported diamonds worth $19.7 billion and imported rough diamonds worth $12 billion, but the country’s imports of cut and polished diamonds stood at $12.9 billion. Even in the corresponding period the previous year, the country had imported cut and polished diamonds worth $15 billion, while its rough diamond imports had stood at $9 billion and total diamond exports were $21 billion.
An industry source said on the condition of anonymity that some traders were involved in importing cut and polished diamonds and re-exporting those, with net outflow of foreign currency. In other words, they were inflating import data, causing a flow of foreign exchange out of the country.
Imports of cut and polished diamonds are allowed because some Indian diamond processors have mining licences in African countries like Botswana, where they have to process and polish diamonds after mining. These companies bring their polished diamonds to India, as most have centralised marketing in the country.
In January, the government imposed a two per cent duty on the import of polished diamonds. This has been hurting the profitability of companies mining and polishing diamonds in Africa, besides small exporters, part of whose export consignments are sometimes rejected. These exporters have to bring the rejected diamonds back to India after paying imports duty.
An affected exporter said the import duty on polished diamonds was hurting such traders. Industry sources also said traders involved in wholesale import and export of polished diamonds had now started moving to rough diamond trade. In such a case, high import duty on polished diamonds hurts smaller players importing for genuine reasons. At present, rough diamonds are exported only when mining companies like De Beers allot diamonds as part of a package and see better value in Antwerp than in India.
GJEPC Chairman Rajiv Jain said: “We have proposed the government move to a presumptive turnover-based tax system from the benign assessment procedure followed currently. This is in the interest of the industry and would help India emerge as an international gems and jewellery trading hub.”
He estimated about $2 billion could be invested in the gems and jewellery industry in the next few years if a presumptive taxation system was introduced.
A senior functionary of a leading diamond exporting country said such a presumptive turnover tax in the range of 1-2 per cent would also solve the issue of inflating imports bills.