Circular trading in diamonds back

DECCAN CHRONICLE. | SANGEETHA G
Published Feb 11, 2019, 12:44 am IST
Updated Feb 11, 2019, 12:44 am IST
Since October, the import of cut and polished diamonds has started coming down drastically.
As circular trading was becoming rampant in the import of cut and polished diamonds, the government increased duties twice last year to check this.
 As circular trading was becoming rampant in the import of cut and polished diamonds, the government increased duties twice last year to check this.

Chennai: Circular trading never stops in gems and jewellery exports. When the government tries to close one route, new alleys open up. After import of cut and polished diamonds (CPD) became no longer feasible for round-tripping, return consignment of CPD has started going up.

As circular trading was becoming rampant in the import of cut and polished diamonds, the government increased duties twice last year to check this. In the 2018 budget, the import duty was raised from 2.5 per cent to 5 per cent and in September it was further raised to 7.5 per cent. At 7.5 per cent, circular trading became non-viable.

 

Since October, the import of cut and polished diamonds has started coming down drastically. In December 2018, this was down by 44 per cent to Rs 789 crore from Rs 1,405 crore in the same month in 2017. Between April and December 2018, the imports were down by 36 per cent to Rs 7,225 crore from Rs 11,271 crore for the same period in 2017.

“After the government increased the duty, those who were importing cut and polished diamonds for round-tripping purposes could not do it anymore. Meanwhile, from October onwards, return consignments of cut and polished diamonds started growing higher. Now this has become a new avenue for circular trading,” said an industry insider.

This is how it happens. In order to inflate the export turnover for bank finance purposes, earlier some of the exporters were importing cut and polished diamonds (CPD) and sending them back without any value addition. Now they send cut and polished diamonds on a consignment basis to overseas markets, where the buyer chooses whatever he wants and sends rest of the stones back. Between showing the export turnover to the bank and then the revised turnover after receiving the return consignment, the exporter gets a breathing time of six months to one year. This round-tripping also helps launder black money.
The return consignment of CPD was up by 55 per cent in October and 40 per cent in November. During the same months in 2017, return consignments registered either low single-digit growth or de-growth.

When asked about the higher growth in return consignments, Sabyasachi Ray, executive director of Gems and Jewellery Export Promotion Council, said: “Of late, most of our markets do not prefer outright purchase of goods. Instead they are demanding goods to come in consignments so that they can choose and return the remaining ones. This is the current market trend and hence we are seeing increase in return consignments”.

In October last year, Financial Chronicle had reported about how crude gold bangles had become instruments for round-tripping after export of medallions and coins declined. In order to check round-tripping, the government had restricted exports of medallions and gold coins by banning shipment of gold products above 22 carat. After that gold jewellery sales started going up by more than 200 per cent.

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