A simpler tax regime will add glitter to India’s gems & jewellery sector

 

In recent times, the emergence of the gems and jewellery industry as a major generator of employment and to economic growth far outshines the sheen on the diamonds and jewellery that we manufacture and sell. This is true for both exports and domestic growth.

 

Let’s first look at exports. The calendar year 2005 reported a rise of 14.81% in overall exports from the sector. This is the 10th consecutive year the industry has reported such a significant growth. These figures reflect the fact that more women (and men) across the world adorn diamonds, coloured gemstones and jewellery from India. The country manufactures 11 out of every 12 diamonds set in jewellery worldwide.

 

Precious stones are also significant for the Indian economy as they translate into a stronger manufacturing base, offer massive employment, especially to the skilled and semi-skilled youth, and draw valuable foreign exchange into the country’s coffers. The sector accounted for over 17% of the country’s total exports during the previous fiscal.

 

India is the world leader in the polished diamond market, manufacturing 55% by value and 92% by volume of the total global production. Though a late starter in the jewellery segment (as a result of the restrictive Gold Control Act that was only abolished in the early 1990s), the country has taken rapid strides to emerge as the fastest growing jewellery exporter in the world.

 

Liberalisation moves adopted by successive governments ever since our present Prime Minister Manmohan Singh was the finance minister in 1991 have spurred growth in this sector.

 

The Budget in 1991 signalled a bold departure from the controls and restrictions.

 

India rose to eminence in the diamond industry after the first wave of liberalisation. The jewellery industry went into overdrive using the base provided by the SEEPZ EPZ in Mumbai.

 

A wave of modernisation in the domestic sector has thrown up remarkable investment opportunities and an entire new spectrum of job opportunities at various points in the production and distribution chain.

 

The jewellery segment is riding the retail boom. The new economic environment offers further growth opportunity that would translate into higher consumption, jobs and investment in exports and domestic markets.

 

Some fine-tuning of policy and a few changes in the fiscal and tax structure can trigger off the next phase of growth. Such moves would help the industry achieve its export target of $20 billion earlier than originally projected.

 

For a further boost to exports, the government should replace the current system of income tax by formulating a new presumptive tax. Such a turnover-based tax will address valuation issues better than income tax. It is already prevalent in many countries, including Belgium, a major diamond-trading hub. It will simplify procedures, without reducing the government revenue, and act as an incentive for foreign players keen on starting operations here.

 

A 5% reduction in duty on import of polished diamonds and coloured gemstones will also help.

 

A simpler tax regime and freeing precious stones from duties will help us make the transition from being a manufacturing centre to being a trading centre of high-end gemstones.

 

Abolition of duties on loose gemstones will enhance the competitiveness of Indian products in the international market. This will help us to expand our market share from 3-4% at present.

 

On the home turf, we want reduction of import duty on 18k (karatage) jewellery and below. This will to do away with the present anomaly, where jewellery entering into country is charged at 3-4% duty while other imports attract a higher duty. It will also fuel growth of jewellery retailing.

 

Indian manufacturers till now have largely been working with 22k gold but a change in consumer tastes has created a huge demand for lower karatage jewellery.

 

The 2% excise duty imposed on branded jewellery in the last budget should be given a second look. This levy should ideally be withdrawn. Even if it is retained, it should be clear what type of jewellery attracts this tax. Today, branded jewellery is one of the key drivers for the surge of the jewellery segment.

 

Its time the government took a fresh look at the duty structure for imports of high-end jewellery and watches. Traditionally, they have been viewed as luxury items. But, in today’s set up, which is characterised by rising number of millionaires, growing consumption of luxury goods should be seen as an indicator of a strong and healthy economy, and should be encouraged with tax benefits.

 

 

 

 

The gems and jewellery sector logged a 14.81% rise in exports in 2005

 

India manufactures 11 out of every 12 diamonds set in jewellery worldwide

 

It accounts for 55% of the total global production of polished diamonds