India's gold and diamond-studded jewellery business is likely to take a hit, at least in the short term, following the hike in import duty from 0.36 per cent to 5 per cent, starting January, on all jewellery products exported to Dubai. Exporters may also stop using Dubai as a hub and start exporting directly to destination countries. In any case in last two months, huge exports already taken place for stocking there.
As much as 32 per cent of Gems and jewellery exported from India are headed to the UAE.
Sanjeev Agrawal, CEO of Gitanjali Exports Corporation said, "The jewellery business has in any case been facing an unfriendly business atmosphere in India since 2013, with the imposition of an increasing number restrictions that haven't spared even units in e-port zones. And now, the 5 per cent duty in Dubai, which has been a major market, will render Indian exports unviable."
Agrawal sees some export units shifting to Dubai and even new investment being made there in order to avoid the duty, unless the Indian government enters in a treaty with that country for a barter-like arrangement under which jewellery is exported against the import of crude oil.
Dubai is a hub for jewellery exports and several units are exporting ornaments from there with higher mark-ups to developed countries. Besides, many tourists prefer to buy their jewellery in Dubai, instead of their home countries, where prices in many cased are invariably much higher. Even the Indian tourist would rather buy jewellery in Dubai, as would the one from the US. In India, 10 per cent import duty, VAT and excise duty make it lucrative for tourists to buy jewellery from them.
Dubai is one of the few locations in the world where one can buy jewellery at a very low mark-up. For instance, plain jewellery. which is sold at a mark-up of 15-20 per cent in Dubai, is sold in some western countries at well over 100 per cent (in fact, nine-carat gold, which contains only 37.5 per cent of the precious metal, can command up to 400 per cent in some markets). What's more, in many cases such purchases also suffer local VAT. According to Sudheesh Nambiath, lead analyst for India and South Asia, GFMS Thomson Reuters, "This differential is significant for a hub like Dubai, where last year the number of visitors increased seven per cent year-on-year to 14.2 million, as against a world average of 4 per cent growth".
Nambiath added, "Our view is that the duty hike could logistically disturb the business in the short term, but for the longer term, the trade has already positioned itself to be a strong manufacturing hub with the required resources as likely to weather the storm."
India, while remaining the largest supplier of gems and jewellery, has seen a sharp fall in exports to the UAE, which dropped from 62 per cent in 2011 to just 34 per cent in 2016. India could also see a challenge to its leadership in items like diamond- and precious stone-set handmade jewellery. This is because the skill sets required to make such ornaments are likely to move to Dubai, following the recent surge in job losses in this sector in India. Besides, tax-free income in Dubai, efficient functioning of the workforce in the UAE, and low-cost capital are other factors that might provide impetus to the handmade jewellery fabrication business in that region.
Rajesh Mehta, CMD of Rajesh Exports said, "While our 60 per cent of exports are to Dubai, we will not affected much as we use Dubai as a hub to re-export the same jewellery. Duty has not been increased for such re-export."
Dubai has emerged as a hub for gem and jewellery exports due to the kind of facilities and flexibility extended to exporters that are not available in India. Some of these include a goods-return policy and lower credit cost.
South India-based jewellers are likely to take the biggest hit as they have all export heavily to Dubai.
There is a shopping festival going on in Dubai currently, and the timing of duty just ahead of this event will test its impact.