Indian Diamond Industry Displeased With Proposed National Budget

India’s new proposed budget was met with mixed reactions by the local diamond and jewelry industry. The budget, according to Finance Minister Pranab Mukherjee, aims to generate a 9 percent growth rate, partially by dramatically increasing government spending. However, to finance it the budget calls for increased taxation, including on import duty on gold and silver.

India's new budget boosts spending by 36 percent, to be spent mostly on transportation, telecommunications and rural development. The diamond industry, a large source of foreign currency and revenue, has not fully benefited from the stimulus package.

On the up side, are the removal of excise duty on branded jewelry, extension of the scheme of 2 percent subvention on pre and post shipment credit to March 31, 2010 (though the industry hoped for a two year extension), withdrawal of import duty on rough coral, a one year extension to the Sunset Clause to SEZs and EOUs and the removal of Fringe Benefit Tax (FBT).

These are offset by other provisions such as the doubling of import duty on gold. According to Vasant Mehta, chairman of the Gem & Jewellery Export Promotion Council (GJEPC), “The recession has not only debilitated the Industry from inside, but has also led it to the precipice of non-competitiveness and loss of market share.”

The increase of duty on gold and silver will hurt the domestic gems and jewelry market, according to Mehta, who feels that this will also have a negative impact on smaller exporters.

But not all felt that the budget does not meet the needs. Joseph Massey, CEO of the MCX Stock Exchange, said it addresses the key issues, particularly in stimulating growth in agricultural, rural development and socio-economic sectors.

“This in turn will go a long way in overall development including creating world class organized financial markets for equity, bond, currency and commodity. I would rate the budget proposal at 8+ on a scale of 10,” Massey said.

The GJEPC would like to see easier access to foreign currency and a 1 percent Turnover Tax in place of current direct taxes, something that will greatly simplify tax collection. “Owing to recessionary pressures, income on export earnings should have been made tax-free for the next two years,” GJEPC said in a statement.

The Council had proposed the setting up of a long-term welfare fund with the government, with the aim of providing these workers with employment guarantees, training and other benefits. This proposal, the GJEPC said, has not even been considered in the welfare schemes.