The gem and jewelry trade faced its first disappointment
last month when it discovered that the government’s Union Budget, which Finance
Minister Arun Jaitley released on February 1, did not incorporate any of the
Gem & Jewellery Export Promotion Council’s (GJEPC) recommendations. These
included 0% import duty on cut-and-polished diamonds and an immediate cut to the import duty on gold, silver and other precious metals.
But the major blow to the industry’s morale came from
allegations of the biggest banking fraud committed in recent times, with
celebrated jewelry tycoon Nirav Modi allegedly at its center. Even more
disheartening was that Gitanjali Gems managing director Mehul Choksi, Modi’s
uncle, was also named in the scandal. The story broke at a time when the
industry was struggling to establish good faith with banks and other lending
agencies.
The fraud case
With Modi and Gitanjali accused of defrauding India’s
state-owned Punjab National Bank (PNB) of $1.8 billion, the case has damaged
the industry’s credibility.
Modi, the darling of the diamond retail industry, whose
collection is sported by Hollywood and Bollywood stars, was 85th on
Forbes’ list of India’s richest people in 2017. Modi and Choksi
are said to have fled the country, and authorities have arrested senior figures
at Modi’s Firestar Diamonds and Choksi’s Gitanjali.
“The incident is of
concern to the entire gem and jewelry industry. We strongly condemn any sort of
unlawful and illegal actions by any individual, trade or otherwise,” GJEPC
chairman Pramod Agarwal responded in a statement.
It remains to be seen whether Modi and Choksi will return
home, and how the money they allegedly owe will be returned to the bank.
The budget diary
Speaking to
Rapaport Magazine, Agarwal praised the
government’s decision to lower goods and services tax (GST) on polished
diamonds from 3% to 0.25% and to draft a policy to reduce import duty on
precious metals.
“We are grateful to the government, as this [will] help the
industry in a great way,” he said of the reduced GST. “Apart from that, in the
recent budget…it was announced that the government would formulate a
comprehensive gold policy, and we shall also continue to seek a reduction in
basic import duty on gold, silver and precious metals, and hope that it will be
considered as part of [a future] gold-policy announcement.”
The government’s declaration was the result of the GJEPC’s first
India Gold and Jewellery Summit, held in December, Agarwal said.
The GJEPC chairman was less positive regarding the move to
increase import duty on cut-and-polished diamonds from 2.5% to 5%, saying this
would make Indian exports less attractive.
“India is the largest exporter of cut-and-polished diamonds,
and while fulfilling the export orders of major customers, [the customers] tend
to send back the unused diamonds — up to 10% of [their] purchases. The levy of
5% customs duty would not only create hardship, but also would make exports
uncompetitive,” Agarwal explained.
He further pointed out that the import duty could
hamper the government’s ambition to turn India into an international trading
hub, as the major international trading centers — Belgium, Israel, Hong Kong,
New York and Dubai — can trade freely.
Article from the Rapaport Magazine - March 2018. To subscribe click here.