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Gems & jewellery exports stare at a bleak future

September 05, 2017 16:41 IST

The sector employs around 1 million skilled and unskilled workers directly and indirectly and decline in exports is a major worry for participants in the value chain.

India's gems and jewellery exports is likely to decline by a staggering 30 per cent in the financial year 2017-18 due to unfavourable government regulations and trade restriction from the Gulf countries.

The signals of the steep decline in exports were already visibile in July with over 26 per cent fall in India's gems and jewellery shipment.

The Gems and Jewellery Export Promotion Council (GJEPC) data shows 26.21 per cent slump in India's net exports of the precious metal's jewellery and stones to 94.58 million in July 2017.

Gold jewellery exports have declined by a staggering 31.67 per cent (worth $411.37 million) in dollar term and 34.47 per cent (valued Rs 2651.70 crore) in July 2017 compared to their respective categories in the corresponding month of last year.

Indian exporters were using UAE not only as a trading hub but also as a re-packaging centre for re-routing of jewellery to the developed countries, including the European Union.

Contributing around 13 per cent to India's overall merchandised exports until last year, gems and jewellery sector holds immense potential for growth.

The sector employs around 1 million skilled and unskilled workers directly and indirectly and decline in exports is a major worry for participants in the value chain.

"The basic reason for the decline in exports is the goods and services tax (GST). Because of this levy, the nominated agencies stopped importing gold in the beginning of its implementation. Gold importers first need to deposit the applicable I-GST and then they need to remit that.

This system of tax levy is a huge blow for them due to the low value addition or profit of just 4 per cent.

They require to deposit the amount (applicable tax levy) more than the profit. The jewellery manufacturers have huge fix expenses like office, workman etc.

So, diamond processors are finding difficult in continuing with their business.

Along with domestic challenges, the government of the United States Emirates (UAE) levied 5 per cent of import duty effective January 1, 2017.

These factors worked together to bring down India's overall gems and jewellery exports drastically which would continue to witness over 30 per cent decline for the full financial year of 2017-18," said Sabyasachi Ray, executive director, GJEPC.

To address the issue, however, GJEPC and the Surat Diamond Association have written to the Ministry of Commerce seeking exemption of GST of 0.25 per cent on rough diamond import and 5 per cent on job work.

"We have written to the government highlighting all the challenges faced by the diamond processing industry.

If not addressed on priority basis, India would lose entire diamond processing business to the competing countries of which China would be a big beneficiary," said Dinesh Navadia, President, Surat Diamond Association.

After importing gold, it's processing takes at least three months to get jewellery from the factory.

Apart from that, another 90-180 days are required from the date of actual shipment to receive payment from overseas buyers.

This means, entire working capital remains blocked for six-nine months for a profit of 4 per cent. On this blocked working capital also, manufacturing units pay interest to banks ranging between 10-14 per cent.

Rajesh Mehta, managing director of Rajesh Exports, said, "Imposition of GST on imported rough diamond without considering its impact on exports is completely harmful. India's gems and jewellery exports, therefore, would vanish and stop in near future."

Photograph: Shailesh Andrade/Reuters

Dilip Kumar Jha in Mumbai
Source: source
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