Why Jewellery Exports from India’s SEZs Go Down?

sez logoIf India’s Q1 export figures are any indication, a conducive atmosphere for the growth of global gem & jewellery industry has been created with constant improvement in economy of Europe and the US. According to the latest figures, India’s jewellery exports have increased by 23% during Q1 of the current year in comparison with the same period of last year.

Although the above figures may be encouraging for the industry leaders, it has brought some worries for the government as the jewellery exports from India’s Special Economic Zones (SEZs for jewellery) on the contrary have drastically reduced recently. According to figures provided by the government sources, exports from SEZs have significantly gone down to Rs. 60,000 crore or 44% in 2013-14.

IT consultancy firm Accenture which was hired by the India government to look into the matter, has recently come out with some suggestions to boost jewellery exports from SEZs. Accenture spoke to a number of India’s exporters, customs authorities and government officials to frame a roadmap to revive exports from SEZs. One of the prime areas of concern found by the Firm is the 80:20 rule as jewellery exports from these SEZs are not counted under 80:20 rule which makes procurement of gold from nominated import agencies difficult for them.

Under the 80:20 rule introduced by the earlier government, the gold-providing agencies have to safeguard that 20% of the gold they import is again exported after adding value (turning them into jewellery). But because exports from SEZs are excluded under this rule, the gold importing agencies charge high premium on the yellow metal from such SEZs. This problem is found to be prevalent in Noida and Kolkata based SEZs, the Firm observed in its report.

The report further observed that SEZ-based jewellery manufacturers who require only small quantities of gold – for example, makers of diamond studded jewellery – are adversely affected as they find it quite difficult to get gold from nominated agencies. Directly importing small quantities of gold proves very expensive to them.

A follow-up done by India’ Gem & Jewellery Export Promotion Council (GJEPC) reveals that SEZs have surrendered major share of the jewellery export business to Domestic Tariff Areas (DTAs). Sources from the Council say that gold jewellery exports from DTAs jumped up higher by 173% to Rs. 6,973.95 crores during Q1 this fiscal year in comparison with Rs. 2,553.38 crores of exports made during the same quarter a year before.

The Accenture report comes at a time when the recently elected Narendra Modi government in India is trying to give a fresh boost to the SEZs. There are eight SEZs in India which export jewellery viz. Noida, Mumbai, Jaipur, Surat, Hyderabad, Kochi, Kolkata and Vizag. The 100 page report by Accenture has also warned the government that the said move by Indian jewellers to set up jewellery units in China and Dubai may slow down India’s gem and jewellery exports.

Major hurdle against the dwindling exports from jewellery SEZs is, as put by the report is the prevailing 80:20 rule. Ball is now in Indian government’s court which is expected to act on the suggestions made by the Accenture.

Posted by Suresh Chotai