Easily one of the best initiatives undertaken by the Gem & Jewellery Export Promotion Council (GJEPC) of India, the Special Notified Zone (SNZ) at the India Diamond Trading Centre (IDTC) in the Bharat Diamond Bourse (BDB) premises is underutilized in some measures, according to a section of the Indian diamond industry members.
Way back in December, 2015, GJEPC launched the ‘India Diamond Trading Centre’ and the SNZ in it, giving wings to the Indian Prime Minister, Shri. Narendra Modi’s vision of making India a global trading hub. This was a significant milestone in the PM Modi’s ‘Make in India’ campaign, to boost and promote India as a global diamond-trading hub.
Obviously, this initiative by the GJEPC was received with much enthusiasm by the Indian diamond industry. It was also a great confidence booster to the Indian diamond industry members, especially the SMEs, who are currently hard hit by liquidity issues, as well as inability to receive finances from lending banks, which demand 100% collaterals from them.
The IDTC-SNZ at the BDB is spread across 4000 sq ft with 9 fully equipped viewing rooms as per international standards, a conference room, and state-of-the-art security systems as well as a strong room. Currently, this facility is utilized by major mining companies around the world, whenever they bring their ‘rough diamonds’ for viewing at the SNZ.
The SNZ was mainly established to ensure regular availability of direct supply of roughs in India itself, which will not only save time and effort for the diamond manufacturers but also minimize middlemen commissions and eventually result in overall cost reductions.
By establishing the SNZ, it was GJEPC’s endeavor to make India a major trading hub similar to Israel, the UAE and Belgium. The Indian SMEs, especially, had great expectations as they would be able to procure rough directly from mining companies. Will it happen in the near future? Doubtful, as some industry members feel that with the tax issues yet to be solved, it may take another two years or more before trading could begin at the zone.
Like most GJEPC initiatives, the SNZ in Mumbai was well planned and adequately equipped; and was expected to spawn many more similar SNZs. According to the GJEPC, it has plans to set up SNZs across the country, in association with various State governments. The State Government of Gujarat has already proposed to set up a gem bourse with a SNZ in it. The same concept will also be extended to coloured gemstones segment like Jaipur, where GJEPC has plans to set up a Gem Bourse.
Last December, Smt. Nirmala Sitharaman, Hon’ble Minister of State for Commerce & Industry, Government of India, inaugurated the SNZ and promised to look into the hurdles like taxation issues, etc., as the diamond industry is an important sector, providing high employment and also accounting for 13% of the country’s exports.
Commenting on the SNZ and current tax structure, Vipul Shah, former Chairman of GJEPC and MD/CEO of Asian Star Pvt Ltd said: “Changes in tax structure that favour trading will be beneficial to all concerned and boost effectiveness of this entire venture. GJEPC is in discussion with the Government to implement these measures and we are looking forward to a positive outcome.”
Currently, India accounts for more than 65% of the world polished market by value; 90% by volume; and 94% in terms of number of pieces. For an industry of this stature, rough diamond requirement is enormous. India’s off-take of rough diamond accounts for a major share of total rough production worldwide. For 2016 it is expected to touch more than 150 mn carats of rough diamonds, valued at $20 bn.
At present, India imports 'rough' from the main trading centers in the EU, Israel and the UAE, with only a fraction of its procurement coming directly from rough producing countries like Australia, Russia, Canada and mining companies in Africa.
Having faced rough shortage for decades, the Indian diamond industry feels that it is now become important for a centre as large as India to source its roughs directly from producers. This will establish stability and continuity of supply to the industry as well as ensure strong economies by boosting the performance of the industry in a big way.
Giving his opinion about the SNZ in Mumbai, the GJEPC's Gujarat Regional Chairman, Dinesh Navadiya stressed the importance of change in tax structure in SNZ and said: “It is very essential to introduce presumptive taxation in SNZ to avail the benefit of SNZ; and to compete in global markets, especially with other trading centres.”
Despite being the largest cutting and polishing centre in the world, India is way behind countries such as Antwerp, Tel Aviv, Dubai, Hong Kong, Shanghai etc. These countries are flourishing as large trading hubs, because of support by their respective governments with favorable policies. Not surprising then that all the major diamond mining companies in the world are trading their 'rough' mainly through these trading centres.
Suggesting 'No tax or a fixed establishment tax' in SNZs, Rajesh R. Shah, Partner-Venus Jewel said: “Most progressive countries where taxation is linked with promotion of trade aim to create zones to exempt such income that may accrue or arise within such specialized zones. In the case of the presently established SNZ, since the idea is to enable viewing and purchasing of goods by the Indian diamond companies in India, which otherwise they would have to travel overseas to purchase. Selling in this manner does not result in profits for the mining companies, since they would have sold goods at the same price overseas as they are being sold within the SNZ. Zoning creates an island, which is assumed to be out of India so far as taxation is concerned. Therefore, what is best for our manufacturers and our country is not to tax any sale made by diamond mining companies who take on the burden of bringing goods to SNZ to facilitate the Indian diamantaires. Else, the whole purpose of creating SNZ is defeated. It is, therefore, best if no tax of any sorts is levied, and if not possible, a fixed establishment tax may be recovered.”
Similar opinions have come forth from most of the industry members, who are appreciative that the IDTC-SNZ has been set up, but would like it to be fully functional as soon as possible to benefit both the mining companies as well as the Indian diamantaires. Members of the Indian diamond industry also look forward to the much-needed support and encouragement from the Government of India by taking positive steps to set right the tax structure. Industry leaders are of the opinion that the government's positive steps will help the Indian diamond industry to grow its strengths; and in due course emerge as one of the largest diamond trading hubs in the world.
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough & Polished
