Vipul Shah, Chairman, GJEPC |

If you are in charge of an EPC, which oversees the top export item of the country, you are in an enviable position. But what if, during your tenure, the export item loses its No.1 status? Vipul Shah, Chairman, Gems & Jewellery Export Promotion Council (GJEPC), is facing such a predicament. Shah, in an exclusive interaction with The Dollar Business, talks about his strategy to reclaim lost glory, and more

Interview by Vanita Peter D’souza | June 2015 Issue | The Dollar Business

TDB: What do you make of the government’s stance on gold imports? How much do you think India’s gems and jewellery exports will benefit if all restrictions and uncertainties on gold imports are removed?

Vipul Shah (VS): With an objective to cut smuggling and raise legal shipments of gold into the country, Government of India scrapped the controversial 80:20 scheme in November, 2014. The scheme had resulted in nearly half of India’s gold imports being routed through only six agencies, thereby raising alarm bells in the government. On the other hand, reducing import duty on gold, a long pending demand of the G&J industry and something that can be a significant step to curb black money, was completely overlooked by the government in the Union Budget for FY2016.

Smuggling of gold plagues the industry and leads to illegal funding. Hence, duty reduction would have helped us control the issue to a very large extent. The government has also identified innovative ways to reduce demand for overseas gold and control current account deficit (CAD), by introducing the gold monetisation scheme and developing an Indian gold coin, which will carry the Ashok Chakra on its face. Such a gold coin would help reduce the demand for coins minted outside India and also help recycle the available gold in the country.

We duly understand that with an objective to control CAD and restrict the gold imports, the government had hiked the duty on gold from Rs.300/10 gm to 10% in stages. Thereafter, it introduced the 80:20 scheme, which failed miserably. We fail to understand that when the 80:20 scheme has been abolished, why the import duty on gold has still been retained at 10%.

We fully support the gold monetisation scheme to check CAD and reduce gold imports. However, any measure affecting the jewellery manufacturing industry is highly intolerable, since it will also affect the government’s ‘Make in India’ initiative. We are confident that post the abolition of all such restrictions and uncertainties on gold imports, the export of gems and jewellery items will benefit in the long run.

 

TDB: Diamonds lost the country’s No.1 export product status to high speed diesel in FY2014. What do you think was the primary reason for this? What is GJEPC doing to reclaim lost glory for India’s diamond exports?

VS: The primary reasons for diamonds losing the No.1 export product status to high speed diesel in FY 2014 are (a) a slowdown in major markets like Europe, China and Middle East, (b) the absence of a turnover taxation system for the Indian diamond industry, (c) the absence of suitable regulatory framework facilitating diamond trading in the country, (d) stringent taxation framework in the country as compared to other competing countries.

With an objective of reclaiming lost glory for India’s diamond exports and after aggressive representations, Government of India has announced the creation of a Special Notified Zone for export and import consignments of diamonds, thus facilitating the direct and smooth supply of roughs from overseas diamond mining companies/countries, thereby ending a decade long issue of availability of roughs in the industry. This zone will also ensure trading of diamonds in the country, which will further facilitate India becoming an international diamond trading hub. GJEPC has also initiated various aggressive promotional and marketing efforts like World Diamond Conference in New Delhi, the 3rd Diamond Week at Diamond’s Dealer Club in New York, sending a delegation to Panama and Mexico and attending CIBJO meetings.

TDB: By when do you think the Special Notified Zone (SNZ) will become a reality? If it becomes a reality, what kind of boost will India’s gems and jewellery industry get?

VS: The Special Notified Zone has been given a special mention in the recently released Foreign Trade Policy 2015-2020. A delegation led by senior officials to Dubai and Antwerp, to understand their ecosystem of taxation practices, has already submitted its detailed report to Government of India. The industry is expecting a customs notification on the initiation of SNZ very soon. This SNZ will give the Indian diamond industry a strong competitive advantage over other diamond trading centres of the world and will ensure a steady supply of rough diamonds in India. The lower cost of importing roughs through the SNZ is expected to benefit the Indian G&J industry hugely in the coming years.

The establishment of SNZ is extremely significant for the Indian diamond industry. In absence of diamond mines in the country, the industry has to procure all its rough requirements from overseas rough diamond mining companies and countries. This means all small and medium diamond traders have no choice but to travel and procure their rough requirements, thus incurring huge transaction costs. Rough diamonds mostly come indirectly through places like Antwerp and Dubai. Ensuring direct supply of roughs would reduce transaction costs and commissions being paid by Indian diamantaires. I would also like to add that currently, India’s stringent taxation regime and procedural hassles discourages overseas miners to auction their roughs directly in India. For them, even opening a sales office is a big hindrance.

 

TDB: Despite several restrictions, India had a trade deficit of $16.8 billion under HS Code 71 in FY2014. Do you think we can ever have a surplus under it? Between import restriction and export expansion, which is more likely to work for the gems and jewellery sector?

VS: Under HS Code 71, gold imports are also taken into consideration, which is the reason for the trade deficit. Out of the total import of gold by India, only about 10% is utilised by the exporting community. The rest 90% is procured by the domestic sector. According to customs data compiled by GJEPC, gross exports and imports of gems and jewellery items in FY2015 stood at $39.9 billion and $31.5 billion respectively, thus indicating a trade surplus of $8.4 billion.

TDB: How justified do you think duty drawback rates for gems and jewellery are? Do they fully compensate for the duty paid on imported components used in export products?

VS: At present, gold and silver jewellery exports attract drawback rates at Rs.219.9/gm and Rs.3,112.5/kg respectively. But, as per the last notification issued by Government of India on import tariff value for gold and foreign exchange rates, w.e.f. April 1, 2015, the total import duty paid by an exporter on gold is Rs.249.6/gm. It should be noted that both foreign exchange and import tariff value for both gold and silver are announced every fortnight by GoI, considering exchange rates and gold prices prevailing in the international market. Right now, the duty drawback rates are way below the actual import duty (10%) on gold. Exports are suffering due to the non-revision of duty drawback rates. In fact, the hike in the import duty of gold and non-revision of duty drawback rates have the potential to destroy the Indian jewellery manufacturing industry.

TDB: What’s your take on the new FTP? Does it have enough for the gems and jewellery industry?

VS: The G&J industry has welcomed the importance given to the sector in the new FTP. Suitable positive amendments have been made for the sector. The new FTP has reiterated the proposal for Special Notified Zones. It has also appointed GJEPC as the Nodal Authority for scrutinising the applications for enlistment of laboratories for export of cut and polished diamonds for certification/grading and re-import. Modifications have also been made under the policy for maximum wastage permissible and minimum value addition in gems and jewellery export items, which are in line with the suggestions of the council.

However, several of our key recommendations like re-initiation of gold scrap policy, amendments in SEZ Act to revive growth, replenishment of gold from nominated agencies against export from their own stock, amendments in courier regulations etc. were not addressed in the new FTP.

TDB: Are you happy with the level of value addition in India’s gems and jewellery exports? What do you think needs to be done to increase it?

VS: Yes, thanks to value addition, the G&J industry has been a leading foreign exchange earner for the country. In FY2015, it successfully battled several crises, including the downturn in China, the unrest in the Middle East, decline of European markets, and the plunge in the Russian rouble. The foresight and agility of GJEPC and the industry helped survive these trying times, largely due to significant actions taken towards investing in USA and UAE.

One of the thrust areas of GJEPC is to showcase India’s finest in jewellery, be it design or innovation, supported by top-of-the-line craftsmanship, technology and quality to customers around the globe. India, with its ability to create intrinsic and inspired jewellery, has made bold statements across the globe.

TDB: Tell us briefly about institutions like IIGI, IDI, GII and IGI. What kind of role do they play in boosting gems and jewellery exports from India?

VS: The gems and jewellery industry is highly skill based. Skill is involved right from the identification and assortment of rough diamonds to the manufacturing of final jewellery. Skill development, training, research and gemmological services have been on GJEPC’s agenda almost since its inception. Today, there are seven educational institutes in five cities; and four gemmological laboratories under the GJEPC umbrella.

Amongst all the training institutes set up by GJEOC, Indian Diamond Institute (IDI), Surat, is one of the oldest and largest institutes for imparting technical skills. We have also set up various grading laboratories like Gem Testing Laboratory in New Delhi and Jaipur. We are helping premier international laboratories like HRD, IGI, IIDGR to either set up their laboratories, or expand their operations in India, so that Indian exporters can get their diamonds certified and graded in the country itself. This will further save transaction cost involved in sending diamonds to overseas accredited laboratories for certification.

With the avowed aim of building a pool of trained manpower for the industry, GJEPC has set up educational institutes offering courses in gems and jewellery in major centres. All of these institutes are not-for-profit organisations and have state-of-the-art equipment and up-to-date facilities.