The Duty Debate

It’s not very often that an increase in import duties is seen as having a positive impact, Diamond World reported in its Weekly E-Post. But this has occurred in the case of the 2% duty on the import of polished diamonds recently announced by the Indian Finance Ministry, which has not been opposed by diamond exporters.
The reason lies in its impact in curbing the malpractice of round-tripping (i.e. repeated import and export of the same parcel of diamonds) that a small section, mainly newer entrants to the business, have been indulging in. Taking advantage of the zero duty structure they have availed of cheaper export credit offered by the banks and utilized the funds elsewhere.
Though the number of companies said to be involved may have been small, they have hurt the trade’s credibility, affected the net value addition and impacted foreign exchange contributed by the industry to the exchequer. It is understood that the jewellery export industry, which either sources polished locally, or re-exports the imported pieces after transforming them into studded jewellery will not be affected. Nor will it seriously hurt consumer demand in the domestic market, since an overwhelmingly large percentage of the polished used is manufactured locally.
Questions do remain – will it harm India’s emergence as a trading centre? Are there alternate methods to curb malpractises? Will the enhanced procedural requirements and other disadvantages ultimately outweigh the benefits? A more detailed discussion is clearly called for.