Import duty on polished diamonds may rise to 5%

To protect the interests of small diamond processors, the government is looking to raise import duty on cut and polished (C&P) diamond to five per cent from the existing two per cent.

The notification is expected any time next week.

The existing duty of two per cent stands negligible for manufacturers, as the cost of processing (cutting and polishing) of rough diamond works out to several times higher than this.

Data compiled by the Gems & Jewellery Export Promotion Council (GJEPC), showed that import of C&P diamond almost doubled in the first six months of the current financial year. This shows that trading activities have intensified at the cost of domestic manufacturing.

Increasing import of C&P diamond assumes significance from the standpoint of employment generation. When the Indian diamond processing industry itself is facing threat of longer Diwali holidays for workers due to a drastic decline in business, encouraging import of C&P diamond will further worsen labour sentiment.

"Increasing import of C&P diamond was posing a threat to domestic processing industry largely to cottage and small scale manufacturers. Hence, the government protection in terms of a spurt in import duty on C&P diamond would discourage trading activities. Increase in import duty on processed diamond would provide a great relief to small and cottage processors," said Vipul Shah, chairman, GJEPC.

Increase in trading activities had caused two major impacts on domestic processors. While a majority of small units could not survive the ongoing slowdown in consumers' purchase despite continuous surge in the cost of infrastructure and thereby manufacturing cost, the industry rapidly lost skilled labour force to other competing industries, including textiles and agriculture.

Increased import of C&P diamond resulted in closure of thousands of small scale units in major manufacturing centres.

"Around 1,000 units in Surat alone have been shut down due to the lack of profit. More are on the verge of closure as import of C&P diamond has reduced manufacturing opportunity for domestic processors," said Govind Dholakia, a Surat-based diamond processor and exporter.

The increase in import duty, however, is unlikely to affect jewellery exporters, as duty paid by them is taken back from the government through Duty Entitlement Passbook Scheme (DEPS).

"Duty increase on C&P diamond will not affect exporters. However, domestic jewellery manufacturers will be badly hit," said Shah.

According to Colin Shah, founder and managing director, Kama Schachter, a renowned brand in gold jewellery, the number of operating units in the Santacruz Electronics Export Processing Zone (SEEPZ), a special economic zone in Mumbai, declined to 125 from over 200 five years ago due to various factors, including higher import of C&P diamond. The number of workers entering SEEPZ has also steadily declined to 6,000-7,000 now from a staggering 13,000-14,000 five years ago.