The partial shutdown of the US government is likely to have had a negative impact on exports of small diamonds from India to the US, according to Colin Shah, vice chairman of the Gem & Jewellery Export Promotion Council (GJEPC). This comes as unwelcome news to an industry that is already experiencing sluggish performance, with The Economic Times citing an 8.5% decline in the value of polished exports in the first nine months of FY2018, sitting at to $22.41 billion. The shutdown started just before Christmas and lasted for a record 35 days in which an estimated 800,000 workers - not counting the contracted workers serving them - went without pay as the Democrats in Congress defied Trump's demand for $5.7 billion in federal funds for a US-Mexico border wall.
“We are yet to assess the entire impact of the US shutdown on exports,” said Shah, “but the impact will definitely be felt on consumption of smaller diamonds that are generally purchased by middle-class US citizens who have been affected by this shutdown.” Furthermore, while the government has fully reopened, it is only at full-strength provisionally. President Trump has set a deadline of February 15 for a budget deal, without which another shutdown may follow. Vipul Shah, a diamond exporter, told the Times that the US-China trade war has also impacted the movement of loose diamonds from India to China. “Exports of diamond jewelry from China to the US have slowed down. Demand from the Far East is less now, which is also impacting Indian exports.” In the nine months to December 2018, exports of cut and polished diamonds from India fell 13% to 22.89 million carats.
GJEPC seeking relief, submits 'wish list'
Last week, the GJEPC released its pre-budget wish-list enumerating the various policy changes necessary for the industry's further growth. The GJEPC has sought Government support in ensuring ease of doing business to help exporters enhance exports in 2019-20. Specifically, the GJEPC seeks a reduction of the import duty on cut and polished diamonds and gemstones from 7.5% to its earlier level of 2.5%, according to a statement from GJEPC Chairman Pramod Kumar Agrawal. The organization also asked that 5% of the FOB (free-on-board) value of exports of cut & polished diamonds in the preceding licensing year should be allowed to be re-imported duty-free by exporters. The wish-list did not stop there, as the GJEPC called for a reduction of the import duty on gold from 10% to 4%, as well as change in the country's income tax regulations to enable foreign mining companies to sell rough diamonds through the Special Notified Zone.
Further, the GJEPC reiterated a long-standing demand for the introduction of a presumptive taxation system for diamonds and gemstones in India. “The introduction of Presumptive Taxation would not only increase the ease of doing business for diamantaires but also encourage diamantaires from across the world to start operations in India as against other preferred destinations such as Belgium, UAE and Hong Kong,” the GJEPC explained. They also advocated segregation of ITC HS Code for both rough lab-grown diamonds and other synthetic stones to provide for the clear differentiation between natural and lab-grown diamonds. They are seeking the introduction of a job work policy in the gems and jewelry industry, and an exemption from payment of IGST on re-import of goods exported during overseas exhibitions/consignments/export promotion tours "to protect exporters from harassment.”
Further still, the GJEPC calls for “a conducive banking environment” for exporters of the gems and jewelry sector. For this, it urged relaxation of credit norms for working capital requirements and requested the government to introduce interest subvention of 5% on export finance for the gem & jewelry sector. The gems and jewelry sector contributes 7% to the country’s GDP, 13.5% to India’s merchandise exports and directly employs around five million people.