Duty cut to lift local gem units

BUDGET IMPACT

The duty cut on rough synthetics in gems and jewellery is expected to benefit the domestic market. Industry players anticipate new job opportunities for cutting and polishing units with a developing market for synthetic stones, commonly known as American diamonds.

In the Budget, Finance Minister P Chindambaram announced customs duty cuts on rough synthetics to 5 per cent, from 12.5 per cent. Unlike natural diamonds, synthetic stones are produced in a factory through high pressure chemical process.

According to the Gem and Jewellery Export Promotion Council, the duty reduction will benefit domestic units through the development of an alternative market and increased manufacturing activity. The duty cut is expected to spur the supply of synthetic stones in the local market.

In 2004-05, the country imported synthetic stones worth Rs 17.07 crore compared with Rs 8.53 crore in the previous financial year.

"It is a positive decision from a long-term perspective. It (the duty cut) has the potential of providing employment opportunities to local cutting and polishing units," said Neelesh Hundekari, director, advisory services, KPMG.

A joint report released by KPMG and the council estimated that the country's share in global diamond processing will drop to around 49 per cent in value terms by 2015, from 57 per cent now. In volume terms, around 9 per cent of the world's diamonds will be processed in African mining countries such as Angola, Nambia and Botswana. At present, India polishes 10 of the every 11 diamonds polished globally.

According to industry sources, the heavy duty cut might have been the result of anticipation of a short supply of rough synthetics and the emergence of polishing centres. However, a section of traders is sceptic about the duty cut. A leading Surat-based diamond trader said, "The decision would benefit the industry in providing jobs in cutting and polishing units. But a huge supply of synthetic stones in the local market may reduce the value of real stones, which are considered precious."

According to sources, prices of rough diamonds have spiralled to $250 from $150. Traders are inclined to buying synthetic stones that are available for $100. Domestic jewellers too see synthetics as a threat, especially because there been instances where synthetic ones been sold as real diamonds.

However, the council maintains that synthetics are no longer seen as a threat. "The jewellery market is growing with availability of wider options. The precautionary steps such as synthetic stone identifications and certification have enabled traders to sell demarcated jewellery."