Budget Requests

March 7, 2010
Zainab S. Kazi

RAPAPORT…

As the month of February drew to a close, the gems and jewelry industry in India was looking to the country’s government for an industry-friendly budget. The Gem and Jewellery Export Promotion Council (GJEPC) has asked the central government to come up with pragmatic policies in its forthcoming budget to provide much-needed support for boosting the country’s gems and jewelry sector.

In its prebudget proposals, submitted to both the Ministry of Commerce and the Ministry of Finance, the GJEPC urged the government to effect structural changes in the direct tax code (DTC) system by excluding the powers of authorized officers to seize any bullion, including precious and semiprecious stones or jewelry, in tax or other legal disputes. In other requests, the council has asked for a presumptive tax system, in which profits are taxed at a single, uniform flat rate, in order for the industry to remain competitive with Belgium, Israel, Dubai and Thailand.

Further, GJEPC wants the Generalized System of Preference (GSP) restored with the U.S. The system, which waives all duty on Indian imports of gold jewelry into the U.S., was rescinded in 2007. Another request was for a special diamond, gem and jewelry fund to ease the financial woes of the industry players.

In compiling his own wish list for the budget, Mehul Choksi, chairman, Gitanjali Group, said, “There are three things we are hoping for.” First, he asked for government support on interest rates because, he said, “while world interest rates stand at about 3 percent to 4 percent, in India, the minimum is between 7 percent to 8 percent, which makes business difficult.” Noting the lack of financing available, Choksi asked that the government consider extending its stimulus program. “Second, we need to have outsourcing from the special economic zones because there are not enough workers outside or inside the zones. Furthermore, due to the seasonality of the business, there is a lot of unused capacity,” he said. Choksi’s third request is for easier availability to gold for every manufacturer.

Industry News

In the aftermath of the arrest of 21 traders in China on allegations of smuggling diamonds into the country, there has been a great deal of speculation that India plans to pull out from the Chinese market. Putting an end to these speculations, Rohit Mehta, president of the Surat Diamond Association, said, “Hong Kong is the biggest export market for India’s polished diamonds. Despite the recent arrests, there will be no impact on exports from India. China and India together have weathered the global economic slowdown with an increased demand in polished diamonds.”

Confirming the interest of the younger generation in the business of gems and jewelry, Aagam Sanghavi was appointed chairman of the Indian Diamond Institute (IDI). The 25-year-old scion of Sanghavi Exports, one of the country’s leading diamond companies, was appointed to take over the reins of IDI by the Ministry of Commerce. At the swearing-in ceremony, Sanghavi, who is also the regional chairman of the Confederation of Indian Industries (CII), said, “The IDI is the only diamond training institute in the country to have a world-class infrastructure. In my opinion, the institute has a very wide and vital role to play in the development of the Indian gems and jewelry industry.” Sanghavi, the youngest appointed chairman in IDI’s 32-year history, succeeds his father in the post.

FITCH Rates Gems and Jewelry

A report released by Fitch Ratings, a global credit rating agency, projects that a significant recovery for the Indian gems and jewelry industry can be expected “only toward mid–2010 for diamond polishers who are export focused, while a recovery for export-oriented gold jewelry manufacturers is likely to take longer.”

Fitch also said that that the bigger players will continue to drive the recovery in the short to medium term, while the smaller players will grow only over the longer term.

The large inventories and receivables built up during the downturn are also likely to ease, according to Fitch. Many exporters have already liquidated a portion of their inventory, and there appears to be an improvement in the collection period, both of which had ballooned during the downturn, the report noted.

The agency expects the industry’s tight liquidity situation to ease during 2010 because of the ongoing liquidation of inventories, coupled with the fact that a substantial portion of the industry’s bad debts were written off during 2009.

The Marketplace