Regulation and Policies

The gems and jewellery sector is a major foreign exchange earner. Due to its
importance in Indias foreign trade, the government has taken many initiatives to
boost the sector. The government, for instance, has declared this sector as a thrust
area for exports. During the global economic meltdown especially the government
has dealt out many initiatives for the badly-affected sector.
In the pre-liberalisation period (prior to 1991), severe restrictions on the export and
import of gold from and into India were imposed. During that time only the State
Bank of India (SBI) and the Metals Trading Corporation of India (MMTC) were allowed
to import gold.
The reasons for imposing these restrictions were:

To reduce demand for, as well as availability of gold

To alter the savings preferences of the population in favour of investments

other than gold/silver

To stop smuggling of gold

To conserve foreign exchange resources

To prevent generation of or to unearth black money. It was thought that since

gold was one of the most obvious choices for keeping undeclared/ill-gotten
income and wealth, a policy to restrict supply of gold would be effective in
curbing black money.

Several schemes that restricted the export and import of gold were launched in
various forms between 1947 and 1963, but the control regime finally took shape
with the implementation of the Gold Control Act 1968. This Act did not allow
goldsmiths to receive more than 100 grams of standard gold for manufacturing
jewellery. Further, a certified goldsmith was not allowed to possess a stock of more
than 300 grams of primary gold at any time. The quantity of primary gold possessed
by a licensed dealer was limited between 400 grams and 2 kg, depending on the
number of artisans employed. There was a legal ban on gold transaction between
dealers.
The government abolished the Gold Control Act when the balance of payment crisis
occurred in 1990, after which the large export houses could import gold freely.
Exporters in the export processing zones were allowed to sell 10% of their produce
in the domestic market. In 1993, gold and diamond mining were opened up for
private investors and foreign investors were allowed to own half of the equity in
mining ventures. In 1997, overseas banks and bullion suppliers were also allowed to
import gold into India. These measures led to the entry of foreign players such as
De Beers, Tiffany and Cartier into the Indian market.

Foreign Direct Investment Policy

At present, the Indian government allows 100% foreign direct investment

(FDI) in gems and jewellery through the automatic route.

For exploration and mining of diamonds and precious stones FDI is allowed up
to 74% under the automatic route.

For exploration and mining of gold and silver and minerals other than
diamonds and precious stones, metallurgy and processing, FDI is allowed up
to 100% under the automatic route.

Kimberley Process (KP)

The Kimberley Process came into force when the South African diamond producing
nations met at Kimberley in South Africa in May 2000. The Kimberly Process was set
up to discuss ways to stop the trade in conflict diamonds and to ensure that
diamond purchases did not fund violence. As of November 2008, the KP had 49
members, representing 75 countries. The Kimberley Process Certification Scheme
(KPCS) was implemented in India on January 1, 2003 to verify the legitimacy of the
import / export of rough diamonds as per the UN resolution and to curb the entry of
conflict diamonds into the global trade flow. The system of verification and issuance
of KPC is administered from the Mumbai and Surat offices of GJEPC. In Indias
Foreign Trade Policy 2009-14, the following measures related to the Kimberley
Process Certification Scheme (KPCS) have been adopted:

No import or export of rough diamonds shall be permitted unless

accompanied by the KP certificate as specified by the GJEPC.

The export and import of rough diamonds to and from Venezuela has been
prohibited by the Indian government owing to the voluntary separation of
Venezuela from the KPCS.

Special Economic Zones (SEZ)

To promote the exports of gems and jewellery, the government has set up various
SEZs with specific incentives. Some important government policies relating to SEZs
in the gems and jewellery sector are highlighted below:

No import or export of rough diamonds will be permitted unless the shipment

parcel is accompanied by the Kimberley Process Certificate issued by the
Development Commissioner.

Cut and polished diamonds and precious and semi-precious stones (except
rough diamonds, precious or semiprecious stones having zero duty) shall not
be allowed to be taken outside the SEZ for sub-contracting.

A gem and jewellery unit may receive plain gold or silver or platinum
jewellery from the Domestic Tariff Area or from an EOU or from a unit in the
same or another SEZ in exchange of equivalent content of gold or silver or
platinum contained in the said jewellery after adjusting permissible wastage
or manufacturing loss allowed under the provisions of the Foreign Trade Policy
read with the handbook of procedures.

The DTA Unit undertaking sub-contracting or supplying jewellery against

exchange of gold or silver or platinum shall not be entitled to export
entitlements.