In an effort to narrow the current account deficit (CAD), the Indian government on Wednesday increased the import duty on 19 'non-essential items' including polished diamonds, gemstones and jewelry, but excluded rough diamonds from the increase. The import duties on cut and polished diamonds, lab-grown diamonds and cut and polished colored gemstones increased from 5% to 7.5%. The rates on "Articles of jewelry and parts thereof, of precious metal or of metal clad with precious metal" and "Articles of Goldsmith or silversmith wares and parts thereof of precious metal or of metal clad with precious metal" increased from 15% to 20%. The new rates went into effect immediately.
The CAD represents the difference between inflows and outflows of foreign exchange, which grew to 2.4% of GDP in the April-June quarter. According to the Times of India, curbing non-essential imports was part of the five-pronged steps the government announced to curb the growning current account deficit and capital outflows. The large trade deficit and the rupee's decline against the US dollar are putting pressure on the CAD, and these steps are likely to have a positive impact on the external sector.
India imported $2.24 billion worth of cut and polished diamonds in FY 2017 (April '17 - March '18), a 15% decline compared to the year prior, according to figures from the Gem and Jewellery Export Promotion Council (GJEPC). For the first five months of 2018 (April-August), imports of cut and polished diamonds have fallen by 41% to $605 million. Imports of colored gemstones fell by 62% last year to $545 million, and are down by 68% for the first five months of 2018.