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Stephen Rego

He has been a journalist since the mid-1980s, and has spent close to two decades tracking the gem and jewellery industry while holding different editorial positions in industry specific publications and websites

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Two Years Of Modi Govt | The Expected Sparkle That Failed To Arrive

Barring a few bold steps that remain hampered by obvious lacunae, the NDA government has failed to match the high expectations of the gem and jewellery trade during its two years in office, and a sense of uneasiness prevails across most segments of the industry.

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Within days of the NDA sweeping to a massive electoral majority in May 2014, the then yet-to-be-formally-sworn-in new government announced a relaxation of some of the restrictions on gold imports put in place by the outgoing regime. It was, relatively speaking, a small policy change. But, to the members of the industry, it seemed like a sign that this was a highly business-friendly government and a golden period of growth was likely to soon take shape.

Two years down the line, however, a sense of uneasiness prevails in most corners of the industry. An immediate, and major, contributor to this mood is the government’s decision to introduce a 1 per cent excise duty on jewellery manufacturing. But, clearly there is more to this shift than just one unpopular levy!

Overall, there seems to be a feeling that the government promised a lot has but has fallen short in terms of any meaningful implementation. Take for example, the case of diamond exporters. They have been pointing our that the sector is a perfect example of Modi’s ‘Make in India’ vision – being global leaders despite the fact that virtually none of the raw materials required are actually produced within the country.

Yet, rather than a boom, the industry finds itself in a difficult situation. In 2015-16, for the first time in a long while, diamond exports dipped below the $20 billion mark, declining year-on-year by 13.66 per cent to $ 19.99 billion. Imports of rough at $14.05 billion were 16 per cent below the $16.76 billion figure of the previous year, the first ever decline in nearly two decades, barring the crisis-hit 2008-09.

To put things in perspective, these figures also reflected issues faced by the industry at a global level. Yet, there is a fairly widespread feeling that the government support during these difficult times could have been better.

Key recommendations made by the industry have been hanging fire, ranging from short-term sops like interest-subvention to more far-reaching policy measures such as implementation of a Turnover Tax, or relaxation in norms to permit Indian diamond companies to undertake job-work via contracts with overseas companies.

Most notable however, has been certain lacunae that have hampered the development of the Special Notified Zone for Trading in Rough Diamonds, personally announced by the PM in December 2014.

Though the operational infrastructure was put in place by the industry within a few months, policy notifications came only towards the end of the third quarter of 2015, and actual operations commenced in December.

Moreover, the Zone remains restricted to viewing, rather than trading, as overseas mining companies are still awaiting a clear cut policy on taxation of income earned on sales. So as of now, the rough diamonds are displayed in India and then travel back to Dubai, Hong Kong or Antwerp where sales are conducted through online auctions or tenders! One step forward......?

The situation for those dealing in gold and gold jewellery is not very different. The NDA government aroused hopes by doing away with the quantitative 80:20 curbs on imports of gold put in place by the earlier UPA government during its first year in office. Subsequently, it it unveiled an alternative approach of import-substitution – one that sought to mobilse idle domestic stocks of the yellow metal through the Sovereign Gold Bonds and the Gold Monetisation scheme.

While the trade has welcomed these as a step in the right direction, suggestions on measures required to make them more effective have not been given a go-ahead, while plans to develop a comprehensive Gold Policy are apparently stillborn.

The government was also widely expected to reduce import duties on gold – currently still at the high of 10 per cent levied during the UPA tenure – in its latest Budget

Instead, the industry found itself faced with the prospect of having to pay a 1 per cent excise duty and put in place necessary administrative systems and infrastructure too. As prominent industry leaders have pointed out, the angst was not just over the financial burden, but more due to the fact that this was a move towards greater, rather than lesser governance, and will open the way to what they euphemistically describe as an ‘inspector raj’. Moreover, they point out, this step to reverse a decades-old policy was done without any prior discussion, or attempt to understand the trade’s specific structure and needs, and involve them in formulating an appropriate revenue generating mechanism.

Perhaps if this task, now being carried out by the Ashok Lahiri committee (informally believed to have been set up as part of the ‘settlement’ to end the all India jewellers strike) had preceded the announcement, the situation could have been quite different.

Ironically, in the two months before the NDA government assumed office, the gold jewellery trade was in disarray and imports of the yellow metal were in the range of 40-50 tonnes, well below the monthly average of a normal year. Two years later in March and April 2016, after having crossed 100 tonnes per month on more than a few occasions in 2015, the figures were back to these low levels, albeit for very different reasons. Ironically, the ups and downs reflected the mood swings of the trade.

The promised ‘Ease of Doing Business’ is clearly still some distance away.