Budget 2018: Customs duty on diamonds doubled, jewellery exports to be hit

Social welfare surcharge adds salt to wounds, country's mission to global trading hub to take a major beating

In a move that will effectively quash the country's aim of becoming the world’s largest trading hub, Finance Minister Arun Jaitley on Thursday doubled import the duty on cut and polished diamonds, coloured gemstones and lab-grown diamonds including half-cut and broken pieces. The proposed duty rate is now 5 per cent, up from 2.5 per cent earlier.

Announcing Union Budget 2018, the Finance Minister also raised customs duty on imitation jewellery from 15 per cent to 20 per cent and imposed a social welfare surcharge of 10 per cent on import duty after withdrawing education cess. The overall effect:  a net surcharge on import duty of seven per cent on customs duty.

The increase in customs duty could prove a major setback for diamond jewellery exporters in terms of cost of production and global competitiveness. Indian jewellers could find difficult to compete with those from other major producing centres, including China. The customs duty hike would also dent India’s potential to become a major trading hub, as envisaged by the Ministry of Commerce.

“The increase in customs duty would dent India’s exports, which have been stagnating over the past few years. Normally, overseas importers return 10 per cent of imported goods because of many factors on which we have to pay 5 per cent duty now,” said Pramod Agarwal, Chairman, Gems and Jewellery Export Promotion Council (GJEPC), under the aegis of the Union Ministry of Commerce.

India imported cut and polished diamonds worth $1.75 billion between April and December 2017, down over 12 per cent from $1.99 billion in the corresponding period a year ago.

“India is the only country to levy import duty on cut and polished diamonds. Major diamond trading centres including Belgium, and Hong Kong have exempted import duty on the precious stones. Hence, this levy would hit India’s cut and polished diamond badly,” said Praveen Shankar Pandya, Managing Director, Revashankar Gems Ltd.

With world-class trading facilities already existing at the Bharat Diamond Bourse (BDB) in Mumbai, the government has been working to make India a global trading centre for cut and polished diamond and has invited leading miners such as De Beers, Rio Tinto and Alrosa to start their trading centres in the country.

The government argued that the world class trading facility in BDB would help small and medium-sized diamond processors to purchase good quality diamond without going abroad.

India currently processes around 90 per cent of the diamond mined globally.

FADING LUSTRE Import of cut and polished diamond into India ($ million)
	Apr–Dec 1016	Apr– Dec 2017	Variation (%)
All SEZs (special economic zones)	804.37	623.92	-22.43
Bonded warehouse	272.81	194.84	-28.60
Mumbai DTA (direct tariff area)	832.30	812.88	-2.33
Other DTAs	4.26	0.83	-80.5
Surat DTA	77.01	115.09	49.4
Total	1,990.75	1,747.56	-12.2
Import through return consignments of exported jewellery	5,829.90	5,820.20	-0.17
Source: Gems and Jewellery Export Promotion Council