“This sector has come a long way from where it was. However, it is still far, far behind where it should be. Our strongest area is diamond cutting and polishing. In terms of the global value, our market share is much lower than it should be. Our future is much bigger than cutting and polishing. We have a lot of unexplored potentials," said PM Narendra Modi to diamond industry. “Go beyond cutting and polishing, make India a manufacturing hub.”
But, the business, which is based on cash found itself in chaos when demonetization of the high-value banknotes became effective from Nov. 8, 2016. Besides, the manufacturing sector, thousands of diamond brokers found themselves doing hardly any business at that time. Modi's step may have intended to make tax evasion difficult for those laundering ill-gotten gains, which is good for the country.
The diamond industry in India, however, thinks that the Indian government’s decision to impose a 0.25 per cent tax on rough diamond imports under the goods and services tax regime (GST) will adversely affect India’s competitiveness because taxing diamonds is a retrograde step. Moreover, the country's gem & jewellery export business will be adversely affected as diamonds are key raw materials.
India exports almost 95% of the processed diamond and is constantly facing stress from other competitive economies. Besides, in many Asian countries, rough diamonds have been kept out of the purview of taxes. The industry, therefore, looks towards the Indian government to reconsider its decision of taxing rough diamond imports under GST. The Indian government should look into this seriously as the Indian diamond industry, where margins are already under severe pressure, the imposition of GST on rough diamonds will make it less competitive.
Commenting on the perpetual claim that despite having achieved sizeable cost efficiencies in the pipeline, the mid-stream is still struggling to achieve sustainable margins on their production, Rajesh Lakhani, Director of Kiran Gems is more confident and says “Business remain unpredictable if seen with short term perspective. In long-term we believe the fundamentals are strong. The market is stable and slightly growing, which leads to better prospects in the coming times.”
Currently, the status stays put as the government GST decision of Gold to be taxed at 2 per cent (1 per cent excise and 1 per cent VAT or value-added tax), while diamonds will also attract 3 per cent GST, while rough diamonds will have a tax levy of 0.25 per cent.
To explain this Manoj Dwivedi, Joint Secretary, Union Commerce Ministry, "Now the current account deficit is improving and this decision (to reduce import duty) should be taken into the budget. The commerce ministry is recommending a reduction in the gold import duty to the Finance Ministry."
It is imperative that generic marketing is the call of the time, and the Diamond Producers Association (DPA) is actively at the promotional level. After launching the Campaign in the US, the DPA is now concentrating on other consuming markets like China and India as well. The GJEPC too is doing its bit by recently contributing a sizeable amount to GPA's funds for its promotional activities. At the launch of the DPA's Campaign in India recently, the GJEPC's chairman Praveen Shankar Pandya encouraged its efforts and said: "We need at least $100 million next year to make an impact on the world market. We have given the DPA $2 million to be spent on international promotion of diamonds this year. We will continue to do this in future years."
But, will the industry get the requested boost through the sole efforts of the DPA to promote diamonds in consuming centres? Maybe it will to an extent... but, must the mining companies alone shoulder the responsibility for creating consumer desire in diamonds or should the industry on the whole pitch in? Should all stakeholders in the industry pipeline participate as well? It's debatable...
A concrete answer will, however, benefit the global diamond industry for sure...
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough & Polished
