Indian diamond trapped in US, African duties

Imposition of export duty on rough diamonds by African nations, along with the possibility of US imposing import duty on Indian polished diamonds has alarmed the industry.

Rough diamonds exports from South Africa, Botswana, Congo, and Angola face a 7 per cent export duty to India primarily for cutting and polishing, thus increasing the cost of raw material.

"The situation has become alarming for the diamond industry as raw material would be costlier while export margins would go down," Sanjay Kothari, chairman, Gems & Jewellery Export Promotion Council said.

According to industry estimates, out of every 10 diamonds produced in the world, eight belong to India and about 80 per cent of the cut and polishing job is done at Surat. US alone accounts for 32 per cent of finished diamond exports from India.

Some observers feel that this move may become counter productive for Indian diamond industry as it will increase the cost of production manifold. The move to impose export duty on rough diamonds by African nations has been aimed at developing local cutting and polishing business and creating domestic job opportunities, an observer said.

African countries have ample raw material and they want to make a fast buck by entering into cutting and polishing business, Rohit Mehta, a Surat based analyst said.

However, Kothari feels that entrepreneurs from Surat and Mumbai can set up their units in African countries to cover losses at home.

But Mehta believes that instead of setting up units in diamond producing countries, India can enter into direct import of diamonds from these countries.

"As of now most of the consignment reaching India passes through middlemen in international locations such as London and Antwerp," Mehta said. "Direct trade between African countries and India would help curtail the costs and manage the losses," he said.

A delegation from Angola had recently visited Surat to establish direct links with diamond industry, he said.

Meanwhile, the US may re-impose 6.5 per cent customs duty on import of jewellery waived off five years ago under General Special Preference policy considering India as a developing country.

"The import duty benefit expired in December 2006 and was further extended to June 30, 2007 but now we fear that duty may be scrapped, thus reducing the margins considerably," Kothari added.

India does $17 billion worth of trade in cut and polished diamonds every year employing 3 million workers in Maharashtra and Gujarat, Kothari said.

India's average labour cost for cutting and polishing stands at $10 per carat but it escalates to $17 a carat in China and $100 in Tel Aviv while it is $150 in Belgium.

"Low cost of labour in producing finished diamonds has attracted worldwide attention and has led to growth of domestic diamond industry but now we'll have to find a way out to limit losses," Kothari said.