Unlocking Potential: GJEPC’s Blueprint for India’s Gem & Jewellery Industry Growth

India’s illustrious Gem & Jewellery (G&J) industry stands as a magnificent pillar of the nation’s economy, a vibrant sector that not only shines on the global stage but also profoundly impacts millions of lives domestically. Contributing a significant 7 percent to our nation’s Gross Domestic Product (GDP), this thriving industry employs approximately 5 million people, with an impressive market valuation of around $40 billion. It is a testament to India’s rich heritage in craftsmanship, intricate design, and a robust supply chain that spans from mining to retail. However, to maintain and enhance its esteemed position, the industry continuously seeks strategic policy interventions that can foster growth, boost competitiveness, and overcome emerging challenges.

In this pursuit of sustained excellence and global leadership, the Gem & Jewellery Export Promotion Council (GJEPC) has put forth a series of critical recommendations to the government. These proposals are meticulously designed to address existing bottlenecks, streamline operations, and unlock new avenues for expansion, ensuring India’s G&J sector remains a dynamic force in international trade and a significant contributor to the national economy.

Crucial Policy Interventions: GJEPC’s Key Recommendations

The GJEPC’s recommendations span several key areas, each identified as crucial for the industry’s health and future trajectory. These include rationalizing import duties, optimizing rough diamond trading mechanisms, enhancing tourist appeal through tax refunds, and leveraging the power of e-commerce for global outreach.

Revisiting Import Duties: A Call for Competitiveness

One of the most pressing issues highlighted by the GJEPC pertains to the current import duty structure, which they argue is hindering the industry’s competitiveness on the global stage. The Council has proposed significant reductions across various categories of precious materials.

Optimizing Duties on Cut and Polished Diamonds & Gemstones

The GJEPC has strongly recommended a reduction in the import duty on Cut and Polished Diamonds and Gemstones from the current 7.5 percent to a more competitive 2.5 percent. This proposed change is driven by recent trends indicating a noticeable decline in export performance. The last financial year alone witnessed a 10 percent dip in the export of diamond-studded jewellery. Moreover, specific segments, particularly cut and polished diamonds in the 2-carat size range, have experienced substantial adverse impacts. The trading of smaller-sized diamonds has also been significantly affected, a trend that, if unchecked, will inevitably render the Indian diamond industry less competitive in the fiercely contested global market. A reduction in duty would not only provide a much-needed cost advantage to Indian manufacturers but also stimulate demand and foster a more vibrant trading environment.

Rationalizing Duties on Precious Metals: Gold, Silver, and Platinum

In a similar vein, the Council has advocated for a substantial reduction in import duty on precious metals such as gold, silver, and platinum. The current duty of 12.5 percent is deemed excessively high, leading to several unintended consequences. Primarily, it results in the undue blockage of vast amounts of working capital for small and medium-sized jewellery exporters, stifling their growth and operational fluidity. This high duty implicitly acts as a disincentive for organized players within the industry, inadvertently pushing trade into less transparent channels. Reports of a significant influx of metals through unofficial channels further underscore the need for duty rationalization. Furthermore, for the procurement of duty-free metals from nominated agencies/banks, exporters are currently required to submit bank guarantees exceeding 100% of the basic customs duty on these metals, an arduous requirement that adds to the financial burden and administrative complexity.

The Gold Market Dilemma: Lessons from Niti Aayog’s Report

The urgency of import duty reform is further corroborated by Niti Aayog’s comprehensive report titled “Transforming India’s Gold Market.” The report highlighted that multiple increases in import duty on gold have led to an unintended consequence: a surge in gold imports from countries with whom India has Free Trade Agreements (FTAs), such as South Korea and Malaysia. This phenomenon has created significant price arbitrage opportunities in domestic markets, making unofficial gold business more attractive due to cheaper imports in the grey market. Ultimately, high import duties are directly hampering India’s export competitiveness, leading to job losses within the sector, and prompting both Indian and foreign buyers to shift their purchases to more cost-effective international markets. Addressing these duties is therefore not just about industry facilitation but about safeguarding jobs and national economic interests.

Unlocking Rough Diamond Potential: The SNZ Conundrum

Another crucial area for reform, as identified by the GJEPC, is the need for amendments in taxation laws to enable the sale of rough diamonds within the Special Notified Zone (SNZ) in Mumbai. The India Diamond Trading Centre-Special Notified Zone (IDTC-SNZ) has been operational since December 2015, established with the vision of facilitating direct sourcing of rough diamonds. As per Customs Circular No. 17/2015, foreign mining companies (FMCs) or their trading arms are permitted to display, trade, and even auction rough diamonds within the SNZ.

Currently, the display of rough diamonds at SNZ does not incur any direct tax implications, thanks to an exemption provided under Section 9(1)(i) of the Income Tax Act, 1961. This provision specifically exempts the income of FMCs from the display of uncut and unassorted diamonds at SNZ from income tax purview. However, a significant loophole exists: there is no specific exemption for the sale of rough diamonds from the SNZ. Consequently, despite the infrastructure and the intention, rough diamonds can only be viewed or displayed at the SNZ, but not sold, limiting its effectiveness as a trading hub.

To fully realize the potential of the SNZ, the GJEPC proposes that the sale of rough diamonds should be allowed on par with participation in an overseas exhibition. Drawing a parallel, Notification No. 8/2016 dated February 5, 2016, already stipulates no income tax is charged if a foreign company imports rough diamonds into India for display or use at an exhibition under a ‘temporary import bond.’ The Council suggests that if the Government of India still wishes to tax the selling activity, it should, without prejudice, offer a level playing field to FMCs or their trading arms (especially those without sales offices in India) by implementing a presumptive turnover-linked tax rate of 0.125%. This would align India with international best practices seen in major diamond trading centers like UAE, Belgium, and Israel, thereby significantly enhancing India’s attractiveness as a global rough diamond trading hub.

Boosting Tourism & Exports: The GST Refund Scheme

India has witnessed a remarkable increase in foreign tourist arrivals over the past decade, presenting a tremendous opportunity for the G&J industry. The GJEPC has identified this potential and recommended the introduction of a tax and import duty refund scheme specifically for foreign tourists in India. There is immense untapped potential in selling exquisite Indian jewellery to these international visitors, who are often keen to take home authentic, value-added products.

Currently, in the absence of a comprehensive Goods and Services Tax (GST) refund procedure – a system prevalent in popular tourist destinations such as Singapore, Malaysia, China, and Thailand – many foreign tourists choose to purchase jewellery from these other international centers rather than from India. This represents a significant loss of potential revenue and foreign exchange for the country. The industry is urgently requesting the introduction of Standard Operating Procedures (SoP) for Tax Refund for Tourists. Such a mechanism would facilitate and enable the refund of GST paid on procurements made by foreign tourists in India. Implementing this scheme would not only significantly increase our exports and foreign exchange earnings but would also ensure that buying jewellery from Indian retail channels consistently contributes to value-added jewellery sales and greater economic benefit for India.

Embracing Digital Trade: E-commerce for Gems & Jewellery

The global retail landscape is undergoing a dramatic transformation driven by e-commerce. Consumers worldwide are increasingly turning to online marketplaces to order a diverse range of gems and jewellery items. Countries like China have astutely recognized and capitalized on the vast opportunities presented by cross-border trade through online platforms such as Alibaba. By exporting various items globally via these digital channels, China has successfully generated massive employment, both direct and indirect, across multiple sectors including manufacturing, packaging, logistics, and technology.

India, with its rich heritage and extensive capabilities in the G&J sector, stands to gain immensely from a similar strategic embrace of e-commerce. The GJEPC emphasizes the need for policy frameworks that support and encourage the online export of gems and jewellery. This would not only diversify market access for Indian businesses but also create a ripple effect of employment generation and technological advancement throughout the entire value chain, bolstering India’s position in the global digital economy.

Detailed Recommendations for a Robust Future

Beyond the broad policy recommendations, the GJEPC has also put forward specific, actionable proposals to further strengthen various operational aspects of the industry.

Streamlining Courier Imports/Exports for E-commerce: To facilitate seamless e-commerce transactions, the GJEPC proposes that jewellery, whether studded or otherwise, up to the value of US$800 should not be categorized as “precious items” for the purpose of Courier Import Export Regulations. This recommendation is rooted in global best practices, where many countries impose no import duty on e-commerce parcels up to US$800 and make no distinction between precious and non-precious items for such shipments. This move would significantly ease the burden on small value e-commerce exports and align India with international norms, promoting greater online trade.
Waiving Shipping Bill Requirement for Small Value E-commerce: Furthermore, for e-commerce shipments up to a value of US$800, given their small individual value and often secured or advance payments, the requirement for exporters to file a shipping bill should be waived. Instead, exports should be permitted based solely on an invoice and a self-declaration. This simplification would drastically reduce bureaucratic hurdles, accelerate logistics, and encourage a greater number of small and medium-sized enterprises (SMEs) to participate in the global e-commerce marketplace for gems and jewellery.
Introducing a Dynamic Job Work Model for Diamonds and Gemstones: India holds a dominant position as one of the largest players globally in diamond and gemstone cutting and polishing. However, competitive jurisdictions often operate under a more flexible model where diamonds, precious, and semi-precious stones can be sent to a job worker free of cost by a Foreign Principal solely for processing activities and subsequent re-export. India currently lacks such an enabling policy for diamonds and gemstones, despite it being available to many other sectors. The introduction of this job work model for the diamond and gemstone industry would offer an incremental opportunity for Indian industry players to capitalize on available global business opportunities, attracting more processing work and boosting export volumes.
Optimizing Special Economic Zones (SEZs): The GJEPC also advocates for enhancements within Special Economic Zones (SEZs) to maximize their potential:
- Allowance of Job Work to SEZ Units for DTA Units: Permitting SEZ units to undertake job work for Domestic Tariff Area (DTA) units would foster greater synergy between these two economic zones. This would allow DTA units to leverage the advanced infrastructure and skilled workforce within SEZs for specialized processing, leading to improved efficiency and quality across the industry.
- Allowance of Sale of Gems and Jewellery Items from SEZ to DTA Units: Facilitating the sale of gems and jewellery items from SEZ units to DTA units would further integrate the supply chain. This would enable a more fluid movement of finished or semi-finished goods, potentially reducing costs and lead times for DTA manufacturers and retailers, ultimately benefiting the entire domestic market.

Conclusion: Paving the Way for a Brighter Future

The recommendations put forth by the GJEPC represent a comprehensive and forward-thinking strategy to propel India’s gem and jewellery industry to new heights. By addressing critical issues such as import duties, rough diamond trading, tourist tax refunds, and e-commerce integration, these proposals aim to dismantle existing barriers and create a more conducive environment for growth. Implementing these changes would not only enhance the industry’s global competitiveness but also significantly contribute to increased exports, higher foreign exchange earnings, and the creation of millions of jobs. It is a blueprint for an industry poised for even greater success, solidifying India’s reputation as a global leader in the exquisite world of gems and jewellery.

News Source: diamondworld