Cir­cu­lar trad­ing in di­a­monds back

The Asian Age - - Financial Chronicle - SANGEETHA G

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 ■ Ex­porters send cut and pol­ished di­a­monds to over­seas mar­kets, where the buyer chooses what­ever he wants and sends rest of the stones back 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 roundtrip­ping 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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