A whopping increase in the import of cut and polished diamonds into India since the start of this year has had many of the country’s small and medium diamond units worried, since it meant a massive reduction in polishing work, leading to layoffs and job cuts.
But then the Indian government stepped in to protect the interests of the small diamond processors. It has now proposed to raise import duty on cut and polished diamonds from the current 2% to 5%, a 150% jump. We can expect the official government announcement any day.
The government’s logic is that the existing 2% duty was “negligible,” as the cost of locally cutting and polishing rough diamonds worked out to be much higher for manufacturers. Import of rough diamonds into India accounts for almost 90% of all diamonds brought into the country, and does not attract any duty. The 2% import tax is only on polished diamonds.
But with inflation and cost of living in India at an all-time high, it means that rather than sending rough diamonds to India to be polished, most of the diamond traders are now importing polished diamonds directly, leaving local diamond polishers with not much to do.
Diamond industry experts also think that the government’s new “protectionist” hike will also discourage speculative trading activities in cut and polished diamonds.
According to a report in the Business Standard, data compiled by the Gems & Jewellery Export Promotion Council (GJEPC) showed that import of cut and polished diamonds nearly doubled in the first six months of the current fiscal year, much of it at the cost of domestic manufacturing.
Other reports say that about 1,000 units in India’s polishing hub of Surat alone have shut down due to lack of profit, while many more are on the verge of closure, since the high import of cut and polished diamond has reduced manufacturing opportunities for domestic processors.
To be continued.