Diamonds are not FM's best friend

The diamond industry found nothing to cheer about in the Union Budget for 2009-10 presented by Finance Minister Pranab Mukherjee. Industry players in Surat - the diamond capital of India - described the Budget as "disappointing", since the beleaguered industry was expecting a special package to counter the recession.

"As far as the diamond trade is concerned, I have never seen such a disappointing Union Budget in my life. The diamond industry contributes around Rs 75,000 crore (Rs 750 billion) to the country's exports and provides employment to millions of people. Before the general elections it seemed that the industry would get some special package. However, the finance minister has offered nothing to the diamond industry and its workers," said C P Vanani, president of the Surat Diamond Association (SDA).

"There is nothing in the Budget for diamond exports," added Mehul Choksi, chairman of the Gitanjali Group. However, he welcomed the move to fully exempt branded jewellery from excise duty and extension of the 2 per cent interest subvention until March 31, 2010.

However, Vanani said extension of the interest subvention and excise exemption for branded jewellery would not help the diamond industry, since branded jewellery formed a very small part of the gems and jewellery industry in the country.

"The government should have offered housing or education schemes for diamond workers. A special package was our main demand. The government should at least have exempted from excise duty the high-end technological equipment that diamond industry players buy to upgrade their businesses," he added.

Budget gem: Excise on branded jewellery goes

The Budget for 2009-10 has exempted all branded jewellery from excise duty, given that the industry is labour-intensive.

The decision is expected to encourage the industry, which is currently reeling under low export and domestic demand amid the global economic slowdown. On the other hand, the government has compensated the exemption through a levy on gold imports.

Since gold forms a major part of overall cost of branded jewellery, the import levy is more than the exemption, said C K Venkatraman, COO of Tanishq, India's largest manufacturer of branded jewellery. But overall, this is a welcome Budget, Venkatraman added.

According to Tehmasp Printer, managing director of International Gemological Institute, "The reduction on excise duty on branded articles of jewellery from 2 per cent to nil will make prices competitive in terms of the jewellery segment."

The sunset for the exemption clause to units in free trade zones has been pushed back by one more year, to the end of the financial year 2010-11. Profits earned in these zones will be exempt from income tax for one more year.

Also, the government extended the 2 per cent pre-shipment credit interest subvention on gems and jewellery beyond the current deadline of September 30, 2009 to March 31, 2010. But this is not enough, said Vasant Mehta, chairman of the Gems & Jewellery Export Promotion Council.

"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. Exclusion of certain significant, corrective measures sought by the jewellery industry from the Union Budget may slow down the revival of this sector and will lead to a setback in the export market," Mehta said.

However, the withdrawal of import duty on rough coral, exemption of exporters of certain services from service tax, abolition of FBT and exemption of service tax on the activities of the council are welcome moves.