SEZ loses business to DTA on unfavourable gold import policy

Jewellers seek relaxation in 80:20 rule which favours business from DTA

The Special Economic Zones (SEZ) dedicated to jewellery manufacturing and exports have steadily lost a major chunk of business to domestic tariff area (DTA) due to age old policy which favours gems and jewellery exports outside export zones.

Data compiled by the apex trade body the Gems and Jewellery Export Promotion Council (GJEPC) showed India’s gold jewellery exports from DTA shot up by 173% to Rs 6,973.95 crore in the first quarter of the current financial year compared with Rs 2,553.38 crore in the corresponding quarter previous year.

In contrast, shipment of gold jewellery from SEZ and export processing zone (EPZ) slumped by 28.78% to Rs 4,702.02 crore between April – June period this year compared with Rs 6,602.53 crore in the same period previous year.

Gradual shifting of business hints towards losing objectives of setting up SEZ / EPZ due to changes in policy, which supports exports from DTA.

“Since introduction of 80:20 rule (whereby four times of jewellery exports value would be made available for domestic sale), gold supply for DTA has been restricted. Because jewellery manufactured in SEZ attracts 15% 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 SEZ just to keep employees engaged,” said Pankaj Parekh, vice chairman of GJEPC.

Exports of gold jewellery (Rs crore)
SEZ / EPZ
April - June quarter	2013	2014	Variations (%)
Total	6,602.53	4,702.02	(-)28.78
Mumbai DTA
Total	2,553.38	6,973.95	173.13
Source : Gems and Jewellery Export Promotion Council, SEZ = special economic zone, DTA = domestic tariff area

Not only exports but also imports of cut and polished diamonds into SEZ recorded a steep decline in the first three months of the current financial year indicating a shifting of business to DTA.

During the first quarter of the current fiscal, import of cut and polished diamond into SEZ fell by a steep 77.52% to Rs 1608.52 crore compared to Rs 7,154.42 crore in the corresponding period last year, data compiled by the apex trade body the Gems and Jewellery Export Promotion Council (GJEPC) showed.

In the same quarter, however, import of cut and polished diamond jumped by a staggering 321.25% to Rs 6968.86 crore compared with Rs 1,654.31 crore in the comparable period last year.

“Most companies in the SEZ 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 export are appearing down,” said Rajeev Sheth, chairman and managing director, Tara Jewels Ltd.

Jewellers, however, anticipate the trend to continue going forward until the government changes gold import guidelines and make the yellow metal available adequately to domestic players.

“This is a fallout for SEZ,’ said Sabyasachi Ray, Executive Director, GJEPC and added, “The government must relax 80:20 rule immediately to prevent SEZ business from further fall.”