New Delhi: After being the largest buyer of Indian gems and jewellery for the past eight years, United Arab Emirates (UAE) slipped to the second position last fiscal after it rolled out VAT for imported goods and the Indian government introduced checks on possible round-tripping in exports.
The share of gems and jewellery that were shipped to UAE slipped to 25 per cent in FY18 from 32 per cent in FY17. Meanwhile, Hong Kong inched up its share from 30 per cent in FY17 to 33 per cent in FY18. Among the three major export destinations, US’ share remained stable at 23 per cent.
UAE had replaced Hong Kong as the largest buyer of Indian gems and jewellery in FY10. UAE had accounted for 43 per cent of the exports from India in that year.
In these eight years both genuine as well as bogus exports for round-tripping purposes to UAE have been growing as Dubai had a tax-free regime. Of late, the Indian government has been tightening the norms on exports to check possible round-tripping.
Exports of gold coins and medallions started coming down since government intervention and in 2017-18 also, export of these items were down 64 per cent. Further, bogus exports in silver jewellery too came under the scanner.
The round-tripping has come down after the government intervention and that’s why we are seeing such a significant decline in exports. There are exporters who have been importing rough diamonds and exporting silver jewellery studded with cheaper synthetic diamonds in return.
At the end of it they get US dollar at cheaper rate for the jewellery that is overvalued at the rate of original diamonds,” an industry expert told Financial Chronicle in condition of anonymity.
While total exports of silver jewellery were down 15 per cent, silver jewellery exports to UAE fell by 44 per cent. Cut and polished diamond exports to UAE too were down 17.55 per cent.
However, gold jewellery exports that had fallen drastically in 2015-16, made good recovery in FY18. Gold jewellery exports to UAE also grew 18.33 per cent in FY18.
“The bogus exports have started vanishing and real exports are growing and this has clear from the way exports to UAE declined and grew in different segments,” said an industry insider.
According to Colin Shah, vice chairman of Gems and Jewellery Export Promotion Council, the introduction of five per cent VAT has affected the exports to the region.
VAT has come into effect from the beginning of the calendar year 2018 and has been in force for the last quarter of FY18. According to him, the real impact will be visible next year when the new tax regime will in force for the entire year.