Budget 2024: From import duty cut to Diamond Imprest Licence, here’s what gem and jewellery sector expects

The jewellery industry is eagerly anticipating potential duty cuts on gold, silver, diamonds, and platinum in the upcoming 2024-25 Budget, to be presented by Finance Minister Nirmala Sitharaman on July 23.

This expectation is particularly noteworthy as it coincides with the wedding and festival season, a time traditionally associated with high demand for jewelry.

India’s gem and jewellery industry is highly dependent on imported raw materials such as gold, diamonds, silver, and colored gemstones. This vibrant sector supports around 4.3 million jobs, accounts for roughly 10% of the country's merchandise exports, and plays a crucial role in driving overall economic growth.

“The Indian gems and jewellery industry contributes around 10% to India’s total merchandise exports. However, the industry is currently facing some challenges due to the geopolitical scenario, the emergence of the beneficiation scheme, and issues related to rough diamond sourcing. Against the backdrop of the macroeconomic scenario, I urge the government to take measures to revive exports in this sector. I request the Hon’ble Finance Minister to introduce a Safe Harbour rule in SNZs, introduce the Diamond Imprest License, and reduce the import duty on gold, silver, and platinum bars to 4%; and introduce duty drawback on exports of platinum Jewellery to take advantage of India UAE CEPA. These measures are crucial to give a competitive edge to our players and boost exports and at the same time generate employment in the sector," said Vipul Shah, Chairman of Gem & Jewellery Export Promotion Council (GJEPC).

Here are some of the key recommendations made by GJEPC for the upcoming Budget 2024-2025 -

Reduction in import duty on precious metals to 4%

The Council has also proposed reducing the import duty on Gold Bars (HS code 7108) from 15% to 4%. This change is expected to unlock approximately Rs. 982.16 crore in duty blockage, providing the industry with increased working capital. With more working capital available, the untapped export potential for gold jewellery could be realized, aiming to achieve at least US$2 billion of the US$11 billion potential over a medium period of 2 years.

Additionally, GJEPC has advocated for lowering the import duty on Silver Bars from 10% to 4%, and reducing the import duty on Platinum Bars from 12.5% to 4%.

Facilitate Rough Diamond Broking and trading companies at SNZ

In order to further expand and enhance the Special Notified Zones (SNZs), GJEPC has urged the Government to permit globally recognized diamond broking and trading houses like Bonas and I Hennig to operate from these zones. These trading houses play a crucial role in the sale of diamonds from smaller miners, who collectively contribute nearly 35% of the global mining output. Importantly, such trading houses already have substantial operations in other international hubs such as Dubai and Antwerp. Enabling these trading houses to function within SNZs under similar facilitation as diamond mining companies would ensure that India gains more flexible, timely, and cost-effective access to diamonds sourced from smaller miners. This would help India maintain its position as a global leader in diamond cutting and polishing.

Introduction of Diamond Imprest Licence

Under the beneficiation scheme, certain mining countries mandate that raw or rough diamonds cannot be exported without undergoing some value addition, such as cutting. When these diamonds are imported into India, they are classified not as rough diamonds but as cut and polished diamonds, subject to a 5% Basic Customs Duty (BCD). This differential treatment makes the export of polished diamonds from India less competitive compared to countries like China, Vietnam, and Sri Lanka. Consequently, due to beneficiation policies, the diamond business is shifting towards mining countries such as South Africa, Namibia, and Tanzania.

Previously, the Diamond Imprest License under the Foreign Trade Policy was withdrawn after the abolition of import duty on Cut and Polished Diamonds (CPD) in 2009. Despite the re-introduction of import duty on CPD in 2012, the scheme was not reinstated. The Gem and Jewellery Export Promotion Council (GJEPC) proposes that Indian diamond exporters above a specified export turnover threshold should be permitted to import a certain percentage, at least 5%, of their average export turnover over the preceding three years. This measure aims to create a level playing field for Indian MSME diamond exporters compared to larger firms. It seeks to prevent the migration of Indian diamantaires' investments to diamond mining destinations, while also generating more employment opportunities in terms of diamond sorting and processing of semi-finished diamonds in factories.

Sale of rough diamonds in Special Notified Zones (SNZs)

The GJEPC has urged the Government to address its long-standing demand to permit the sale of rough diamonds in Special Notified Zones (SNZs) under the Safe Harbour Rule and to broaden the range of entities allowed to operate within SNZs. Currently, only viewing sessions organized by mining countries take place at SNZs. The primary objective of establishing SNZs was to ensure easy access to rough diamonds by creating procurement efficiencies and enabling overseas diamond mining companies to sell their products directly to Indian manufacturers.

While countries like Belgium and Dubai allow the sale of rough diamonds, with no direct tax on such sales in Dubai and a 0.187% turnover tax in Belgium, Indian bidders are currently unable to purchase rough diamonds from SNZs. This is because the waiver under section 9(1)(i) of the Income-Tax Law, which would allow such sales by FMCs at SNZs, has not been provided.