Import duty helps curb round-tripping of gems.

SURAT: Measures taken by the Central government last month to curb and check the round-tripping or repeated export and import of polished diamonds by imposing 2% import duty have started paying off.

As per the latest import-export statistics released by the Gems and Jewellery Export Promotion Council (GJEPC), imports of polished diamonds dropped 59% to $944.93 million by value, and 52% to 1.966 million carats by volume in January 2012 compared to same month previous year. Last year, the import of polished diamond in January 2011 was $.2.2 billion in value and 4.7 million carats in volume.

On the other hand, the polished diamond export in January-2012 fell 19% year-on-year to $1.7 billion and declined by 37% by volume at 3.32 million carats compared to the same month in previous year.

However, rough diamond import increased by 7% to $1 billion in January, while the rough exports surged 45% to 153.27 million compared to the same month in previous year.

Sources said the then finance minister P Chidambaram had scrapped the three% import duty on cut and polished diamonds in the 2007-08 budget, opening up the world market for the Indian diamond industry.

But, the recent developments in the industry related to the bank frauds running into Rs.2,500 crore by some of the leading diamond companies involved in the round-gripping of the polished diamonds is said to have forced the central government to keep the imports under the scanner of the customs department. In 2010- 11, the industry imported $20 billion worth of polished diamonds and exported $28 billion worth of polished diamonds.

GJEPC authorities said the diamond traders in the past have risked the bank loans in a scheme of round- tripping, to cover losses and possibly carry out speculative deals. The practice uses cheap finance to cover repeated export of the same diamonds imported fro their overseas firms, while funds shore up the balance sheet and appear to list increased turnover.

"The import of polished diamond is likely to decrease further in the coming months as the diamond firms have now come under the direct scanner of the customs department. It is good for the industry to practice transparency with the government" said Sanjay Kothari, vice-chairman, GJEPC.

Contrary to the development, there are many in the industry who believes that the two% import duty regime is destroying India's role as the primary diamond trading hub and that will encourage China and Dubai to strengthen their market presence globally.

"India is fast emerging as the diamond consumer market along with China. However, many leading diamond jewellery firms have set up shops in India to attract the consumers. The two% import duty will make the high-end polished diamonds costly in the country. However, India will lose its status as the primary trading hub," said a DTC sightholder.

Source : timesofindia.indiatimes.com