Budget 2024: India's Gold & Diamond Industry Contributing to Economic Growth

India has a rich history of manufacturing jewellery since ancient times. Gold, precious stones, designs, and excellent craftsmanship are some of the distinct factors that make Indian gold jewellery a sought-after asset. Along with the demand for traditional gold jewellery, which is central to India’s gold consumption, there is increasing demand for light-weight and studded jewellery. To meet the domestic and international demand for gold & diamond jewellery, India imports gold & diamonds, and other precious stones too, as there is very little gold production in the country. Interestingly, India is the second largest consumer of gold in the world. It is also the second-largest market for jewellery in the world.

According to government data, gold imports during April-December 2023 increased by 26.7% to USD 35.95 billion. This increase came on the back of healthy demand. In December alone, gold imports shot up by 156.5% to USD 3 billion.

As for gems and jewellery, India held the sixth rank as regards its share in the world’s exports of gems & jewellery in 2022. The value of the exports was US $917.2 billion. Interestingly, between 2019 and 22, India ranked No.1 in the exports of lab-grown diamonds and synthetic stones. It held a 29% share in the global market with a value of US$ 6.48 billion.

This makes the diamond industry India, one of the largest businesses in the country. The gems and jewellery industry contributes almost seven per cent to the country’s GDP, and 15.71% to India’s total merchandise exports.

Given this, India has immense potential to become a leading global market for gold & diamond jewellery.  Learn how to start an import-export business in India and unlock new opportunities.

The Present Situation

In the past couple of months, gems & jewellery exports have been facing challenges due to the economic downturn in major export markets, the geopolitical concerns causing supply constraints and the unavailability of the precious metal in the country. Also, inflationary pressures are wreaking havoc in the global markets.

Besides these, exports from India need to become competitive by changing archaic policies, reducing high import duties, and optimally utilizing capacities and export- promoting zones.

Also, the gold industry has its own set of challenges. Due to the ongoing geopolitical conflicts, the rising prices of gold may deter purchases of gold except for weddings and other occasions.

What Budget 2024 Can Do?

With so much potential for India to become a global jewellery hub, there are a few aspects to take care of. Industry bodies and representations from the diamond industry India and gold industry emphasize the following aspects for India’s gems and jewellery industry to take off.

Infrastructure Development: A boost to infrastructure can ensure the availability of raw materials at competitive prices. GIFT City has a vital role here by allowing international gold suppliers to supply gold to Indian manufacturers at a competitive price. More importantly, the availability of gold at competitively-priced gold loans to make the business of gold companies more competitive is the need of the hour.

Reduction in Import Duties: There is a need to introduce Diamond Imprest License, or a reduction in the import duty on cut and polished diamonds from the existing five per cent to 2.5%. This will help cope with the impact of beneficiation policies in several countries where natural diamond mining is undertaken. It will also enable India to compete with China, Sri Lanka, and Vietnam. Also, a reduction in the import duty on precious metals from 15% to four per cent and the extension of the Manufacture & Other Operations in Warehouse (MOOWAR) scheme to include the gem & jewellery industry is expected to enhance accessibility to raw materials. This initiative is also expected to foster innovation, thus ensuring competitive pricing and benefiting the manufacturers and consumers.

Safe Harbour Rules: By allowing Safe Harbour rules for the sale of rough diamonds in Special Notified Zones (SNZs), India can become a trading hub at par with Dubai and Belgium. This is expected to route 60% of the rough diamonds traded through auctions and bought by Indian manufacturers, to come to India for trading. The sale of diamonds in SNZs can do away with the Equalisation levy of two per cent on the sale of roughs through online auctions, otherwise an additional cost to the manufacturers. Also, it is important to expand the ambit of entities entitled to operate through SNZs.

Permission to Foreign Broking/Trading Houses to Operate in SNZs: The Budget must allow globally-recognized broking/trading houses to operate in the SNZs. These trading houses enable the sale of diamonds to smaller miners, who account for 35% of the global mining produce. This will ensure a flexible, timely, and cost-efficient access to diamonds, and make India a leader in the cutting and polishing of diamonds. It would also help India stay immune from the Russia-Ukraine crisis. Also, by allowing SNZ to function as a Free Trade Warehousing Zone, the existing facilities will be utilized optimally and the financial viability of the centers will be maintained.

Introduction of ‘Rates & Taxes Refund’: To maximize benefits from the exports of plain gold under the India-UAE Comprehensive Economic Partnership Agreement, it is recommended that a Rates & Taxes Refund mechanism through EDI be introduced. The refund rates should be aligned with rates and taxes prevailing on the day of export.

Skill Development Initiatives: Investing in skill development initiatives is essential to nurture talent and enhance the capabilities of artisans and craftsmen in the gems and jewellery sector. The Budget needs to focus on continuous skill development to be at par with international standards of manufacturing.

Lower Duties on Machinery Imports: There is also a need for the import duties on machinery imports to be lowered along with the government offering support and subsidies. This will ensure that the manufacturing capacity is fully utilized even when the global demand for gems and jewellery wanes.

Special Financing: There is an industry demand for special financing to help Indian brands and manufacturers market the ‘Made in India’ tag across borders.

Support for Capex: As a leading contributor to the country’s total foreign exchange, if the Budget can support manufacturers in their capex, it will help them reach global markets. The industry expects budgetary support with new technologies such as lab-grown diamonds or the latest machinery.

Conclusion

Thе Budgеt 2024 can help India’s gold and diamond industries foster competitiveness of its exports by addressing the challеngеs. Kеy mеasurеs such as a boost to infrastructure, import duty rеduction, safe harbor rules implementation, and skill development support arе еssеntial to improve competitiveness. Facilitating accеss to financе and, incеntivizing innovation and supporting capital expenditure will furthеr strеngthеn thе industry. With the right policies and industry backing, India can polish its gold and diamond sеctor into a lеading global hub, drive еconomic growth, and еxport еarnings.