Figuring out the duty hike

The Indian government has reported a record trade deficit of $ 184.9 billion for FY 2011-12, with the gem and jewellery sector being the second highest contributor, only behind oil imports, Diamond World reported in its Weekly E-Post. There was actually a 10% fall in diamond imports to $ 31 bn, or else the deficit would have been bigger. Later the GJEPC released its annual figures which indicate that while rough imports over the year increased by 26%, polished imports declined by a whopping 30.9%.
This decline came after the imposition a 2% duty on polished imports to curb the practice of round tripping being indulged in by a handful of elements in the industry.
The short term success of this move should not, however, hide its long term implications. An import duty is an obstacle to the industry’s aim of emerging as a trading centre, as well as a reversal of the zero import duty regime introduced in 2003, which was in line with universally accepted principles of free globalised trade.
Could there have been an alternative to the duty? If so, what shape could it have taken? There are no easy answers! But, with its short term goal achieved, the trade must now put its heads together and evolve a working solution. One that will encourage genuine trading activity while also curbing any misuse of policy measures by elements who are interested only in making profits that are morally indefensible, even if technically within the law.