The government permits 100% foreign direct investment (FDI) in the gems and jewellery sector under the automatic route. The sector is the second largest foreign exchange earner in India. It plays a significant role in the economy, representing 7% of gross domestic product and 15% of total merchandise exports. In 2022-23, overall gem and jewellery exports increased by 2.48% to USD39.3 billion from USD37.5 billion in 2021-22. The sector significantly contributed to India’s total exports of USD419 billion and growth of 44% from 2020 to 2021.
The government has supported the industry, making it the world’s largest cutting and polishing centre for diamonds and a major exporter. Surat, a city in Gujarat is home to more than 450 manufacturers, importers and exporters making it the global jewellery manufacturing hub. In November 2023, the city will open the Surat Diamond Bourse, a diamond trading hub spread across 35.54 acres providing state-of-the-art infrastructure for manufacturing and trading. It will promote the import, export and trading of Indian diamonds, gems and jewellery.
To boost the sector, the government has reduced the import duty on cut and polished diamonds from 7.5% to 5% and the import of sawn diamonds is no longer dutiable. Other government schemes offer 90% assistance to set up common production and processing centres, design centres and testing facilities. Association marketing hubs and exhibition centres also receive subsidies of up to 80% of project costs. The Emergency Credit Line Guarantee Scheme for micro, small and medium enterprises has been extended to 2023, the government recognising that more than 90% of entities in the sector fall into this category.
India exports 75% of the world’s polished diamonds, and 29% of the world’s current supply of jewellery is of Indian origin. This is the result of low costs and the availability of high-skilled labour. The domestic market supports more than 300,000 entities, mostly small players. It was valued at USD75 billion in 2017 and is expected to reach USD100 billion by 2025.
The diamond industry is labour-intensive, employing some 4.5 million workers. It is one of the fastest-growing sectors and is highly export-oriented. The availability of low-cost, highly skilled labour has attracted major business groups to invest in India. As an example, the International Institute of Diamond Grading and Research, part of the De Beers group of companies has invested USD15 million in a diamond grading and testing centre in Surat. The group has announced that the centre will also provide education opportunities covering essential industry subjects.
With its potential for growth and adding value, the gems and jewellery sector has been designated a focus area for export promotion by the government. The industry can thus take advantage of the various measures to encourage investment and to upgrade technology and skills as it promotes “Brand India” in the international market.
During the past five years, the market for lab-grown diamonds has expanded rapidly. The government has given a five-year research grant of INR2.4 billion (USD29 million) to the Indian Institute of Technology in Madras to develop indigenous technology for producing such diamonds. In the interim, the duty on the import of seeds used in manufacturing lab-grown diamonds has been abolished.
With 100% allowable FDI and reforms to the ease of setting up business in India, foreign investors in the jewellery sector will find it opportune to expand their bases locally and for luxury brands in the jewellery sector to open flagship stores. Recently, the US luxury jewellery brand Tiffany & Co opened its first store in India.
India is on its way to becoming the world’s fastest-growing economy. The government’s Make in India initiative has launched a number of reforms encouraging FDI, fostering business and ridding the business environment of outdated policies and regulations. These are designed to align with the parameters of the World Bank Index. According to this metric, India ranks number 63 in the world for the Ease of Doing Business, moving up from 142 in 2014. The gems and jewellery industry plays an important role in the Indian economy especially as it is a major contributor to the total foreign reserves of the country.
Rohit Jain is the managing partner and Apeksha Lodha is a partner at Singhania & Co.
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