Duties on polished diamond imports have curtailed the repeated export and import of polished diamonds leading to a sharp decline in exports, a healthy sign government says
MUMBAI - India's polished diamond trade saw a sharp decline in February following the imposition of a2% import duty by the Indian government on polished diamond imports on January 17, 2012. Imports of polished diamonds have fell by 80% to $476.2 million by value during February. The Gems and Jewellery Export Promotion Council has termed it a "very healthy'' sign, despite the fact that the volume of exports sank 55%.
An official of the Council said that polished imports have reduced significantly since India imposed the duty on cut and polished diamonds. He said the measure taken by the government to curb the "round tripping", or repeated export and import of polished diamonds, is clearly paying off.
"The sharp fall has resulted in curbing of round tripping of diamonds, wherein traders undertake a series of exports and imports of the same goods for the purpose of receiving greater bank financing through import duty levy,'' said the official. He added that India exported $1.44 billion worth of polished diamonds in February, which was a 53.7% drop as compared to February 2011.
According to data from the Gems and Jewellery Export Promotion Council, in the current financial year till January 2012, India exported diamonds worth $19.7 billion and imported rough diamonds worth $12 billion, but the country's imports of cut and polished diamonds stood at $12.9 billion. Even in the corresponding period of the previous year, the country had imported cut and polished diamonds worth $15 billion, while its rough diamond imports stood at $9 billion and total diamond exports were $21 billion.
Allegations were rife that some traders were involved in importing cut and polished diamonds and re-exporting them, resulting in a net outflow of foreign currency from the country.
India allows imports of cut and polished diamonds since some Indian diamond processors have mining licences in African countries like Botswana, where they process and polish diamonds after mining. These companies then bring their polished diamonds to India.
Officials said the volume of exports in February 2012 declined by 69% to 1.4 million carats from the 4.5 million carats imported a year before. Earlier, when the Council had released its statistical report for 2010-11, officials said the Indian government had kept the industry under close scrutiny.
What also brought on the scrutiny was the huge import of polished diamonds worth $20 billion, which was an increase of 57% as compared to the previous year, said traders.
They added that the import of polished diamonds had risen significantly after 2008 and especially when the then finance minister P Chidambaram scrapped the 3% import duty. It was then that diamond traders indulged in round ripping.
Traders added that the import of polished diamonds was likely to decrease further in the coming months since the diamond firms have now come under the direct scrutiny of the customs department. Though the governmental measures are stymieing round tripping, traders have also voiced concern over the fact that the high tax regime could destroy India's role as a primary diamond trading hub.