AMITY UNIVERSITY, UTTAR PRADESHAMITY BUSINESS SCHOOL

AN ASSIGNMENT ON GEMS AND JEWELLERY EXPORT

SUBMITTED TO:- SUBMITTED BY :-

Prof. Rajnish Shankhdhar Mr.Khwaja Mohd. Asim

Mr. Raghuvendra Upadhyay

Mr. Sarvesh Shukla

MBA-IB, Ivth Sem.

INTRODUCTION

The Gems and Jewellery industry occupies an important position in the Indian economy. It is a leading foreign exchange earner, as well as one of the fastest growing industries in the country. Due to its importance in India’s foreign trade, the government has taken many initiatives to boost the sector. The government, for instance, has declared this sector as a thrust area for exports.

Gold and precious gems have played a pivotal role in the Indian social fabric and economy. Precious gems and jewellery are a part and parcel of Indian traditions and customs. Gold has traditionally been valued in India as a savings-and investment vehicle and even today, continues to be the second most popular instrument after bank deposits.India has the distinction of being the first country to introduce diamonds to the world. The country was also the first to mine, cut & polish and trade in diamonds.

The Indian G&J industry can be classified into various sub segments like diamonds, coloured stones, gold and silver jewellery, pearls, etc. However, the two major segments in India are gold and diamonds. India dominates the diamond processing trade with 11 out of 12 diamonds being cut and polished in India.

Gems and jewellery is one of the fastest growing sectors in the Indian economy with an annual growth rate of approximately 15 per cent. The gems and jewellery industry accounts for nearly 20 per cent of the total Indian exports and employs over 1.3 million people, directly or indirectly.

Gems and Jewellery is an important emerging sector in the Indian Economy. Ranked among the fastest growing sectors, it is also a leading sector for foreign exchange generation.

The gems and jewellery industry is very much fascinating being traditionally glamorous and artistically modern. This business employees and engages millions; cover wide activities such as raw material procurement from far flung Africa, Australia, Canada and Russia, and transforming these into products in demand with the skills available in China, India, Italy and Turkey for the sophisticated markets in the USA, Europe, Far East, Middle East and Asia.

KEY COMPONENTS OF GEMS AND JEWELLERY

The primary function of gems and jewellery (GJ) is to decorate and adorn. However,demand for different types of GJ is influenced by several factors including buyer preferences, properties, varieties, unit values, application, etc. The GJ sector may be further categorised into the following sub-sectors based on characteristics, processing techniques, preciousness in terms of price range and marketability.

1. Gemstones

❑ Diamonds- Diamonds have always enjoyed a special place among precious gemstones. In the past, diamond jewellery was limited to a very small elite segment of the global population. However, over the past 50 years, diamonds have seen increasing democratisation. Diamond jewellery has, therefore, emerged as a segment showing significant growth in some of the emerging markets.

❑ Coloured Stones-precious, semi-precious, synthetic- This segment includes all other forms of jewellery; precious gemstones (emeralds, sapphires, rubies and tanzanite) and semi-precious gemstones; silver, pearls, etc. The industry is highly fragmented making it difficult to track supply, demand and global trade.

2. Jewellery- Gold has always been the jewellers' favourite metal given its intrinsic lustre and ease of fabrication Gold jewellery enjoys the leading position in most markets across the world, and in many ways forms the backbone of the precious jewellery industry. Given the fact that gold is also one of the traded metals, gold jewellery consumption is also impacted by gold price movements.

❑ Plain gold Jewellery ❑ Studded Jewellery ❑ Silver Jewellery ❑ Costume Jewellery

The two major segments of the sector in India are gold jewellery and diamonds. Gold jewellery forms around 80 per cent of the Indian jewellery market,with the balance comprising fabricated studded jewellery that includes diamond and gemstone studded jewellery. Besides, India is world's largest cutting and polishing Industry for diamonds, well supported by government policies and the banking sector with around 50 banks providing nearly $3 billion of credit to the Indian diamond industry.

STRUCTURE OF THE INDUSTRY

India’s Gems & jewellery industry is highly unorganized and fragmented with 96 percent of the total players being family owned businesses. The gold processing industry has around 15000 players with only 80 having revenues over USD 5 million.India is also home to around 450,000 goldsmiths, 100,000 gold jewellers along with 6,000 diamond processing players and 8,000 diamond jewellers.

The value chain of the industry starts from sourcing and mining of the metals and extends to jewellery retail. While India is not a major miner of previous metals and stones, the country’s inexpensive and well skilled workforce makes it a world leader in processing of diamonds. The country’s jewellery retail sector is also expected to evolve with a shift among consumers towards branded jewellery, driven by greater quality consciousness.

The demand for gold and diamond jewellery is driven by festivals, weddings and gifts, the increasing affluence of the middle class population and the increase in per capita spent on luxury items.

The country at present has a small but growing organized sector. organised players such as Tata with its Tanishq brand,Gili Jewellery’s Gitanjali brand etc. The Jewellery Retail Sector key players are:

Reliance Retail is planning an aggressive entry into the jewellery retail market. It will open between 400 to 500 jewellery retail outlets across the country.

Damas Jewelry, one of the world’s leading jewelry retailer entered India in 2003 with a 50-50 joint venture with Gitanjali Gems Ltd. It is one of the largest jewellery retail outlets in the world.

Swarovski, the global crystal goods manufacturer and marketer, plans to set up retail stores.

The Gitanjali Group has bought 'Nakshatra', the premium brand of jewellery promoted by Diamond Trading Company (DTC)

Mumbai-based Vardhaman Developers plans to build four more jewellery malls in the city.

Dubai-based Joy Alukkas has recently opened its largest showroom in Chennai.

Gitanjal Gems Ltd opened its first luxury jewellery mall in Gurgaon, where a number of international brands have started their retail business.

There is expectation for organised retail to grow because of the changed buying preference of the increasing younger population through the introduction of hallmarking and certifications. The key drivers for growth in the industry are increasing disposable income, conscious marketing efforts, rising young population with the urge to spend on jewellery since it’s regarded a fashion accessory. Indian G&J players are recognizing the importance of diversifying their business to emerging markets like China and the Middle East and not completely relying on the US as was the case before the financial crisis. However, it will be difficult to replace the US which is still the largest diamond market in the world. We now expect emerging market countries to be the engines of future growth for the diamond market as the demand from developed countries will remain subdued for some time to come.

Based on the gradual recovery in the global markets, the some of the leading indicators that signal a growing momentum in the Indian G&J sector. Factors like significantly lower inventory levels as compared to the period of financial crisis, a huge jump in export numbers, lower unemployment levels and stable rough diamond prices, all reveal a resurgence in the sector which was so critically impacted during the financial crisis when demand from developed countries plummeted.

MARKET STRUCTURE

The Gems and Jewellery (G&J) market essentially comprises of sourcing, processing, manufacturing and selling of precious metals and gemstones, such as, Gold, Platinum, Silver, Diamond, Ruby, and Sapphire etc. The G&J market is a significant contributor to the Indian economy, based on the size of the domestic market and through its contribution to the country’s exports. India is the largest consumer of gold (around 20 percent of global consumption) and also the largest diamond processor (around 90 percent by pieces and 55 percent by value of the global market).

A predominant portion of the gold jewellery manufactured in India is consumed in the domestic market. However, a major portion of the rough, uncut diamonds processed in India is exported, either in the form of polished diamonds or finished diamond jewellery. The largest consumer of gold worldwide, India is also the leading diamond cutting nation. India also dominates the gold and silver consumption globally with consumption of approximately 800 tonnes (gold) per annum.The Gems and Jewellery sector, being highly export oriented, is a significant contributor to India’s foreign exchange earnings.

The gems and jewellery exports from India was pegged at US$ 30 billion for 2010-11 by the Gems and Jewellery Export Promotion Council.

During the first three quarters, April-December 2010-11, India’s exports rose by 41 per cent to reach US$ 27.5 billion as compared to the same period in 2009-10. The gems and jewellery exports from India is now estimated to rise 17.8 per cent to touch US$ 33 billion in 2010-11. Moreover, exporters are on a positive note for 2010-11, expecting a robust global demand.

The sector is being expected to cross the targeted US$ 30 billion during the 2010-11 as against the US$ 28 billion in 2009-10, on back of a healthy demand from the western markets like the US and Europe. The US and European market constitute of about 60 per cent of India’s gems and jewellery exports. Indian exporters are also exploring other new markets including South America and East Asia in order to reduce their dependency on the West.

The Gems and Jewellery sector, one of India's leading foreign exchange earning sectors over the years has witnessed a considerable growth in the volume of exports from export figures of US$ 29,433.7 million in the FY 2009-10 to US$ 43,139.24 million in FY 2010-11, thus indicating a net increase of 46.89% in the total gem and jewellery exports.

The performance of this industry is critical as it contributes 16.67% to India's total merchandize exports.

Fig.1: Exports of Gems & Jewellery

The exports grew from US$ 18,243.92 million in 2009-10 to US$ 28,251 million in 2010-11. Cut and polished diamonds accounted for 65.49% of the total exports baskets with gold jewellery comprising 29.86% while colour gemstones and others accounted for 4.69%.

Fig.2 Percentage share in Export Basket

The growth in the sector was primarily driven by cut and polished diamonds which registered an increase of 54.91% in FY 2011.

Fig.3: Export of Cut & Polished Diamonds

Colored gemstone exports also increased by 9.68% in dollar terms with sector witnessing a rise from US$ 286.78 million in 2009-10 to US$ 314.54 million in 2010-11.

Fig.4: Export of Coloured Gemstones

Gold jewellery exports have also been on a rise with the figures accounting for a 33.27% increase over FY 2011. From US$ 6,132 million in 2009-10 to US$ 12,885.59 million in 2010-11, the increase is apparent.

Fig.5: Exports of Gold & Jewellery

Indian handmade jewellery enjoys immense popularity among the Indian emigrant population. Over the years, the US, Hong Kong, UAE, Belgium, Israel, Japan Thailand, UK and Singapore have been the major export markets for the Indian gems and jewellery sector.FY 2010-11 saw UAE emerge as the largest exporting destination with 47% of exports to the market, followed by Hong Kong with 22% and the US with 11% of exports.

Net Exports of Gems and Jewellery items during April-October 2011

The summary of export of gems and jewellery items during April 2010-March 2011 as compared to same period last year

Items April-October 2011

April-October 2010(Same ports as current year)

% Growth/decline over previous Year

US$ in Million US$ in Million US$

Cut & Pol Diamonds 15195.08 14807.71 2.62

Gold Jewellery-D.T.A 1357.28 1209.24 12.24

SEZ/EPZ (included Gold Jewellery & Gold Medallions and coins)

7968.97 5535.29 43.97

Total 9326.25 6744.53 38.28

Coloured Gemstones 187.17 158.45 18.13

Silver Jewellery 386.92 284.18 36.15

Others * 17.52 9.08 92.95

Net Exports 25112.94 22003.95 14.13

Exports of Rough Diamonds 995.65 580.44 71.53

Others 51.45 31.96 ---

Total Exports 26160.04 22616.35 15.67

“Today the industry is looking at a staggering growth of 46.67%, the most we have seen in the past three years. India today is looked upon as one of the leading players in the global arena and we believe that this growth path will continue in the coming year as well". "Time has come to establish India as a BRAND to reckon with in the gem and jewellery sector. Indian gem and jewellery industry today enjoys a leadership position globally in manufacturing of diamonds, which is attributed to the in-house expertise of cutting and polishing. The world is eyeing India today for trade across various sectors – be it diamonds, colorstones, or jewellery. From a trading hub in gems and jewellery, the focus is now to take India a level up in the value chain and promote the sector as a Design Destination globally”.

REGULATING BODIES

Gems & Jewellery Export Promotion Council (GJEPC): Established in 1966, the GJEPC is the apex body of the Indian gems and jewellery industry, and has around 6,500 members across India. The primary goal of the Council is to introduce the Indian gems and jewellery to the international market and to promote their exports. The Council provides market information to its members regarding foreign trade inquiries, trade and tariff regulations, rates of import duties, and information about jewellery fairs and exhibitions. The roles played by the GJPEC are broadly highlighted below:

Trade Facilitator-The Council promotes the Indian gems and jewellery industry in the international market. It organises international jewellery shows, hosts trade delegations, and undertakes image-building exercises through advertisements, publications and audio-visual means.

Advisory Role-The Council also aids better interaction and understanding between traders and government. The Council takes up relevant issues with the government and agencies connected with exports. It also submits documents for consideration and inclusion in the Exim Policy.

Nodal Agency for Kimberley Process Certification Scheme-GJEPC works closely with the Indian government and the traders to implement and oversee the Kimberley Process Certification Scheme; in fact, the Council has been appointed as the nodal agency in India under the Kimberley Process Certification Scheme.

Training and Research-The GJEPC runs many institutes that provide training in all aspects of manufacturing and design in Mumbai, Delhi, Surat and Jaipur.

Varied Interests-The Council publishes many brochures, statitical booklets, trade directories and a bi-monthly magazine- Solitaire International, which is distributed internationally as well as to its member.

Gem & Jewellery Trade Council of India (GJTCI): The GJTCI was founded in 2000, and is tasked with resolving any issue arising from trade in gems and jewellery. It plays an important role in showcasing the Indian gems and jewellery to the international as well as the domestic market. Like the GJEPC, GJTCI also provides information to its members through a monthly newsletter, various educative and trade-motivational events such as seminars, workshops, exhibitions, festivals etc.

The Bureau of Indian Standards: The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body set up under the Bureau of Indian Standards Act, 1986 and is responsible for hallmarking gold jewellery in India.

DEREGULATION OF GOLD IN INDIA

In the pre-liberalisation period (prior to 1991), severe restrictions on the export and import of gold from and into India were imposed. During that time only the State Bank of India (SBI) and the Metals Trading Corporation of India (MMTC) were allowed to import gold.

The reasons for imposing these restrictions were:

To reduce demand for, as well as availability of gold To alter the savings preferences of the population in favour of investments other than

gold/silver To stop smuggling of gold To conserve foreign exchange resources To prevent generation of or to unearth black money. It was thought that since gold

was one of the most obvious choices for keeping undeclared/ill-gotten income and wealth, a policy to restrict supply of gold would be effective in curbing black money.

Several schemes that restricted the export and import of gold were launched in various forms between 1947 and 1963, but the control regime finally took shape with the implementation of the Gold Control Act 1968. This Act did not allow goldsmiths to receive more than 100 grams of standard gold for manufacturing jewellery. Further, a certified goldsmith was not allowed to possess a stock of more than 300 grams of primary gold at any time. The quantity of primary gold possessed by a licensed dealer was limited between 400 grams and 2 kg, depending on the number of artisans employed. There was a legal ban on gold transaction between dealers.

The government abolished the Gold Control Act when the balance of payment crisis occurred in 1990, after which the large export houses could import gold freely. Exporters in the export processing zones were allowed to sell 10% of their produce in the domestic market. In 1993, gold and diamond mining were opened up for private investors and foreign investors were allowed to own half of the equity in mining ventures. In 1997, overseas banks and bullion suppliers were also allowed to import gold into India. These measures led to the entry of foreign players such as De Beers, Tiffany and Cartier into the Indian market.

EXPORT SCHEMES FOR GEMS AND JEWELLERY

S cheme for Gems and Jewellery -4A Exporters of gems and Jewellery can import / procure and duty free inputs for manufacturing.

Replenishment Authorisations -4A.1Exporters may obtain Replenishment (REP) Authorisations from RA in accordance with procedure specified in HBP v1.

4A.1.1Replenishment authorisation may also be issued for consumables & tools as per paragraph 4A.28 of HBP v1.

Import of Diamonds for Certification/ Grading & re-export - 4A.2 The authorized offices/agencies in India of Gemological & Institute of America (GIA) or any other agency approved in this regard, shall be permitted to import diamonds to their laboratories for the purpose of certification/grading reports by them with a condition that the same should be re-exported with the certification/grading reports issued by them without any import duty, as per the procedure laid down in HBP v1.

Schemes for Gold/Silver/ Platinum Jewellery- 4A.3 Exporters of gold / silver / platinum jewellery and articles thereof Silver / Platinum may import their essential inputs such as gold, silver, platinum, Jewellery mountings, findings, rough gems, precious and semi-precious stones,synthetic stones and unprocessed pearls etc. in accordance with the procedure specified in this behalf.

Nominated Agencies 4A.4 Nominated agencies are MMTC Ltd, Handicraft and Handloom Export Corporation (HHEC), State Trading Corporation (STC), the Project and Equipment Corporation (PEC) of India Ltd, STCL Ltd, MSTC Ltd, Diamond India Limited (DIL), Gems & Jewellery Export Promotion Council (G&J EPC)), Star Trading House (only for Gems & Jewellery sector) and Premier Trading House under Paragraph 3 .10.2 of FTP and any other agency authorised by RBI. Exporters (except EOUs and units in SEZ) may obtain gold / silver / platinum from nominated agency(s).

Procedure for import of precious metal by these agencies (other than those authorized by RBI and the Gems & Jewellery units operating under EOU and SEZ schemes)and the monitoring mechanism thereof shall be as per the provisions laid down in HBP v1 in this regard.A bank authorised by RBI is allowed export of gold scrap for refining and import standard gold bars as per RBI guidelines.

Items of Export 4A.5 Following items, if exported, would be eligible for facilities(a) Gold jewellery, including partly processed jewellery and articles including medallions and coins (excluding legal tender coins), whether plain or studded, containing gold of 8

carats and above;

(b) Silver jewellery including partly processed jewellery,silverware, silver strips and articles including medallions and coins (excluding legal tender coins and any engineering goods)containing more than 50% silver by weight. (c) Platinum jewellery including partly processed jewellery and articles including medallions and coins (excluding legal tender coins and any engineering goods) containing more than 5 0% platinum by weight.

Value Addition 4A.6

Value Addition (VA) for gems and jewellery sector shall be as per paragraph 4A.2.1 of HBP v1. It would be calculated as under:

A – BVA = ————— x 100, where B

A = FOB value of the export realised / FOR value of supply received.

B = Value of inputs ( including domestically procured ) such as gold / silver / platinum content in export product plus admissible wastage along with value of other items such as gemstone etc. Wherever gold has been obtained on loan basis, value shall also include interest paid in free foreign exchange to foreign supplier.

Wastage Norms 4A.7 Wastage or manufacturing loss for gold / silver / platinum jewellery shall be admissible as per paragraph 4 A.2 of HBP v1.

Export against Supply by Foreign Buyer 4A.8 Where export orders are placed on nominated agencies / status by holder / exporters of three years standing having an annual average turnover of Rs. Five Crores during preceding three licensing years, foreign buyer may supply in advance and free of charge, gold / silver / platinum, alloys, findings and mountings of gold / silver / platinum for manufacture and export.Such supplies can also be in advance and may involve semi-finished jewellery including findings / mountings /components for repairs / re-make and export subject to minimum value addition of 1 0%. However, if so imported semi finished gold / silver /platinum jewellery is exported as studded jewellery, value addition of 15 % shall be achieved. In such cases of export, wastage of 2 % may be permitted.

Export Against Supply by Nominated Agencies 4A.9 Exports may be made by nominated agencies directly or through their associates or by status holder / exporter.Import and Export of findings shall be on net to net basis.

Exporter may obtain gold / silver / platinum as an input for export products from nominated

agencies in advance or as replenishment after exports in accordance with specified procedure.

Export Against Advance Authorisation 4A.10 An Advance Authorisation may be granted for duty free import of:(a) Gold of fineness not less than 0.995 and mountings, sockets, frames and findings of 8 carats and above;(b) Silver of fineness not less than 0.995 and mountings,sockets, frames and findings containing more than 50% silver by weight;(c) Platinum of fineness not less than 0.900 and mountings, sockets, frames and findings containing more than 50% platinum by weight.

4A.11Such authorisations shall carry an export obligation to be fulfilled as per procedure specified in paragraph 4A of HBP v1. Value addition shall be as per paragraph 4 A.2.1 of HBP v.1.Advance Authorisation holder may obtain gold / silver/platinum from nominated agencies in lieu of direct import.

Gem Replenishment Authorisation 4A.12 Gem Replenishment (Gem & Jewellery REP) Authorisation may be issued as given in paragraph 4 A.8,4A.9 and 4A.10 above.In case of plain or studded gold / silver / platinum jewellery and articles, value of such Authorisations shall be determined with reference to realisation in excess of prescribed minimum VA.Such Gem REP Authorisations shall be freely transferable.

Gem REP Rate and Item 4A.13 Replenishment Rate and item of import will be as prescribed in Appendix 12B of HBP v1.

Export Promotion Tours/Export of Branded Jewellery 4A.14 Nominated agencies and their associates, with the approval of Department of Commerce, and others, with the approval of Gem & Jewellery EPC (GJEPC), may export gold / silver / platinum jewellery and articles thereof for exhibitions abroad.Personal carriage of gold / silver / platinum jewellery,precious, semi-precious stones, beads and articles and export of branded jewellery is also permitted, subject toconditions as in HBP v1.

Personal Carriage of Export / Import Parcels 4A.15 Personal carriage of gems and jewellery export parcels by foreign bound passengers and import parcels by an Indian importer/foreign national may be permitted as in HBP v1.

Export by Post 4A.16 In case of exports through Foreign Post Office (including via Speed Post), value of jewellery parcels shall not exceed US$ 75000 and 20 kg. by weight.

Diamond & Jewellery Dollar Accounts 4A.17 Firms and companies dealing in purchase/ sale of rough or cut and polished

diamonds/precious metal jewellery plain, minakari and / or studded with / without diamond and/or other stones, with a track record of at least two years in import or export of diamonds / coloured gemstones/ diamond and coloured gemstones studded jewellery / plain gold jewellery, and having an average annual turnover of Rs. 3 crores or above during preceding three licensing years, may also carry out their business through designated Diamond Dollar Accounts (DDA).Dollars in such accounts available from bank finance and / or export proceeds shall be used only only for:(i) Import / purchase of rough diamonds from overseas/ local sources;(ii) Purchase of cut and polished diamonds, coloured gemstones and plain gold jewellery from local sources;(iii) Import / purchase of gold from overseas / nominated agencies and repayment of dollar loans from the bank; and(iv) Transfer to Rupee Account of exporter. Details of this DDA Scheme are given in HBP v1.A non DDA holder is also permitted to supply cut and polished diamonds to DDA holder, receive payment in dollars and convert same into Rupees within 7 days.Cut and polished diamonds and coloured gemstones so supplied by non-DDA holder will also be counted towards discharge of his export obligation and / or entitle him to replenishmen

Authorisation.4A.18

Gems and Jewellery exporters shall be allowed to export cut and polished precious and semi-precious stones forthe treatment and re-import as per Customs rules and regulations. In case of re-export, the exporter shall be entitled for duty drawback as per rules.

Re-import of rejectedjewellery 4A.19 Gems & Jewellery exporters shall be allowed to re-import rejected precious metal jewellery as per para 4 A.32 of HBP v1.

Export on consignment basis 4A.20 .Gems & Jewellery exporters shall be allowed to export diamond, gemstones & jewellery on consignment basis as per HBP v1 and Customs rules and regulations

IMPORTS OF GEMS AND JEWELLERY

The raw materials required for manufacturing gems and jewellery are scarcely produced in India and hence, the sector heavily depends on imports. Thus, for this highly export oriented sector, one of the competitive disadvantage that it faces is the fact that most of the raw materials required are imported. Consequently, the manufacturers have to endure the risk of exchange rate and global commodity price volatility, which affects the profitability of the

sector to a large extent. The government has time and again taken various measures such as: de-licensing gold imports; reducing the barriers to imported raw materials; lowering the customs and excise duties to facilitate imports and for enhancing the competitiveness of the sector.

Importing Agencies for Gold

The following agencies / entities are entitled for direct import of precious metal

a. Designated banks notified by the RBI-At present there are 23 banks that are approved by the RBI for this purpose

b. Agencies / entities notified by the Department of Commerce: o MMTC Ltd o State Trading Corporation (STC) o The Projects & Equipment Corporation of India Ltd o Handicraft and Handloom Export Corporation (HHEC) o EOU and SEZ gems and jewellery units for their own consumption.

In a recent move by the Ministry of Commerce & Industry (as on Feb 26, 2009) in order to ease the supply constraints the following agencies such as The Gems & Jewellery Export Promotion Council (G&JEPC), Premier Trading Houses & Star Trading Houses (only for Gems & Jewellery Sector) besides Diamond India Limited (DIL), MSTC Limited and STCL Limited have been added under the list of nominated agencies for the purpose of import of precious metals.

The government has also come out with the guidelines (as on Mar 31, 2009) where at least 10% of the imports of each designated importing enties will have to be supplied to the exporters. This is likely to benefit the exporters, especially the small players and improve distribution across the country.

GOVERNMENT INITIATIVES TO BOOST THE SECTOR

Measures taken by the government in the Union Budget 2009-10:

Customs Duty on Gold and Silver

Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs 100 per 10 gram to Rs 200 per 10 gram. Customs duty on other forms of gold to be increased from Rs 250 per 10 gram to Rs 500 per 10 gram.

Customs duty on silver to be increased from Rs 500 per kg to Rs 1,000 per kg. These increases will also be applicable when gold and silver (including ornaments) are imported as personal baggage

Central Excise Duty

Excise duty on branded articles of jewellery to be reduced from 2% to nil. All categories within HS code 71 except the ‘diamonds whether or not worked but not

mounted or set’ (HS code 7102) and certain sub-categories within HS code 7104 and 7106 currently have an excise duty rate of 16%.

The category ‘diamonds whether or not worked but not mounted or set’ (HS code 7102) currently does not attract any excise duty.

Sub-category ‘Piezo-electric quartz’ (HS code 71041000), silver (including silver plated with gold or platinum) in powdered form (HS code 71061000), unwrought (HS code 71069100) and other (HS code 71069290) do not attract any excise duty.

Fiscal Stimulus Measures (December 2008)

The Reserve Bank of India announced certain fiscal stimulus measures in December 2008 to revive the Indian economy during the onset of the global financial crisis. The following measures were announced for the Indian gems and jewellery sector:

Increasing the post-shipment Rupee export credit period from 90 days to 180 days from November 28, 2008

Increasing the pre-shipment rupee export credit period from 180 days to 270 days from November 15, 2008

Providing an interest subvention of 2% up to March 31, 2009, subject to minimum rate of interest of 7% per annum, to make pre and post-shipment export credit for gems and jewellery more attractive

Allowing exporters to avail refund of service tax on foreign agent commissions of up to 10% of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme

Banks will charge interest rate not exceeding Benchmark Prime Lending Rate (BPLR) minus 4.5% on pre-shipment credit up to 270 days and post-shipment credit up to 180 days on the outstanding amount for the period December 1, 2008 to September 30, 2009.

Export Facilitation Measures by the Ministry of Commerce and Industry

Further, in February 2009, the gems and jewellery sector got a special boost from the Ministry of Commerce with the following announcements: Gems and jewellery, diamonds

and precious metals were given a special boost by the Ministry of Commerce and Industry, the Export Promotion Council for Gems and Jewellery and Star Trading Houses (in the gems and jewellery sector). Besides, the Diamond India Ltd, MSTC Ltd and STCL Ltd were added under the list of nominated agencies notified under Para 4 A.4 of foreign trade policy for the import of precious metals.

Surat, Gujarat has been given the recognition of a town of export excellence, because it is home to thousands of diamond units that employ many diamond workers.

The authorised persons of gems and jewellery units in export-oriented units will be allowed to carry personal carriage of gold in primary form up to 10 kg in a financial year subject to the RBI and customs guidelines.

Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters.

Foreign Trade Policy 2009-2014

Foreign Trade Policy has identified the gems and jewellery sector as a thrust area with prospects for export expansion and employment generation. The highlights of the policy are:

a. Import of gold of 8 carat and above allowed under replenishment scheme subject to import being accompanied by an Assay Certificate specifying purity, weight and alloy content.

b. Duty Free Import Entitlement (based on FOB value of exports during the previous financial year) of consumables and tools, for:

1. Jewellery made out of:i. Precious metals (other than gold and platinum) – 2%

ii. Gold and platinum – 1% iii. Rhodium finished silver – 3%

2. Cut and polished diamonds – 1%3. Duty free import entitlement of consumables for metals other than gold,

platinum will be 2% of FOB value of exports during the previous financial year.

c. Duty-free import entitlement of commercial samples shall be Rs 300,000.d. Duty free re-import entitlement for rejected jewellery shall be 2% of FOB value of

exports.e. Import of diamonds on consignment basis for certification/ grading and re-export by

the authorised offices/agencies of Gemological Institute of America (GIA) in India or other approved agencies will be permitted.

f. To promote export of gems and jewellery products, the value limits of personal carriage of gems and jewellery products in case of holding/participating in overseas exhibitions increased to US$ 5 mn and to US$ 1 mn in case of export promotion tours. Further, the limit in case of personal carriage, as samples, for export promotion tours, has been increased from US$ 0.1 mn to US$ 1 mn.

g. Extension in number of days for re-import of unsold items in case of participation in an exhibition in the US increased to 90 days.

h. In an endeavour to make India a diamond international trading hub, diamond bourses will be planned.

i. Gems and jewellery units may sell up to 10% of FOB value of exports of the preceding year in Domestic Tariff Area (DTA), subject to fulfilment of positive Net Foreign Exchange (NFE). In respect of sale of plain jewellery, recipient shall pay concessional rate of duty as applicable to sale from nominated agencies.

In order to boost the gems and jewellery sector, the value addition norms were reduced in the FTP 2009-14. Earlier, owing to abrupt fluctuation in gold prices, exporters were unable to comply with the previous high value addition norms.

Under the scheme for export of jewellery, value addition shall be calculated as per paragraph 4 A.6 of FTP. Minimum value addition shall be:

Special Economic Zones (SEZ)

In order to boost foreign trade and investment, the Indian government introduced the SEZ policy in April 2000 under the Export-Import (EXIM) policy. Under the policy, the government allowed companies to set up units in SEZ to manufacture goods or provide services that facilitated a hassle-free environment for exports. However, it was the SEZ Act 2005 –passed in February 2006 – that laid down regulatory frameworks and rules for setting up and for the operation of SEZs. With extended tax holidays up to 15 years – from previous tax holiday of 10 years, the SEZ Act managed to generate considerable level of interest; as a result, the number of SEZs witnessed a sharp rise in a matter of few years. The Act envisages promoting exports of goods and services, promoting FDI, creating employment, generating economic activity and most importantly, developing infrastructure.

To promote the exports of gems and jewellery, the government has set up various SEZs with specific incentives. Some important government policies relating to SEZs in the gems and jewellery sector are highlighted below:

No import or export of rough diamonds will be permitted unless the shipment parcel is accompanied by the Kimberley Process Certificate issued by the Development Commissioner.

Cut and polished diamonds and precious and semi-precious stones (except rough diamonds, precious or semiprecious stones having zero duty) shall not be allowed to be taken outside the SEZ for sub-contracting.

A gem and jewellery unit may receive plain gold or silver or platinum jewellery from the Domestic Tariff Area or from an EOU or from a unit in the same or another SEZ in exchange of equivalent content of gold or silver or platinum contained in the said jewellery after adjusting permissible wastage or manufacturing loss allowed under the provisions of the Foreign Trade Policy read with the handbook of procedures.

The DTA Unit undertaking sub-contracting or supplying jewellery against exchange of gold or silver or platinum shall not be entitled to export entitlements.

CONCLUSION

The future growth of Indian jewelry industry lies in finding new markets and in adding value. Worldwide, jewelry is a big business, which is extremely lucrative as margins are high compared to diamonds, as branding can demand high premiums.

India was a late entrant to the global jewelry market and its industry took off after establishment of the export processing zones in 1990, especially the special economic zone in Mumbai that accounts for 40 % of India's exports. It has taken the country a few years to incorporate international designs, styles and finishes.

The outlook for the industry is bright, but how much of this amazing performance will actually translate into improved bottomlines will lie in the capability of individual businesses

to harness the potential of new markets and products. With intense competition in market, the stock performance will depend on how efficiently, in terms of both cost and marketing, companies can cut and polish diamonds and also venture into the lucrative but difficult jewellery industry.