The country's Rs 60,000-crore (Rs 600-billion) diamond industry is likely to lay off 200,000 workers this year and with it the dream of making India a processing hub, according to Sanjay Kothari, chairman, Gems & Jewellery Exports Promotion Council, if the government does not frame favourable policies.

At present, the industry employs about 800,000 skilled and semi-skilled workers. Because of a slowdown in sales to the US, India's largest exports destination, the country laid off about 100,000 - 150,000 jobs last year.

Pre-budget proposal

• Zero import duty on cut and polished coloured gemstones
• Halve plain gold jewellery (below 18 carat) duty to 5 per cent
• Duty on pre-forms of precious and semi-precious stones should be lowered from 5 per cent to nil
• Precious metals scrap duty must be cut from Rs 250/10 grams to Rs 100/10 grams
• Duty on machinery at 5 per cent from 10 per cent

Elaborating the difficulties faced by the industry, Kothari said,"Gold imports should be permitted to all large and medium size jewellery exporters with a minimum export size of Rs 500 crore (Rs 5 billion).

This will not only stop levies by the local suppliers but also help hedge risks efficiently. Although gold imports attract zero custom duty and only one per cent value added tax, mid-size jewellery manufacturers cannot procure gold when prices decline.

"Thus, the profit margin is managed heavily by nominated agencies, that is, only scheduled commercial banks and Super Star gold jewellery exporters with minimum export turnover of Rs 5,000 crore (Rs 50 billion).

He said the industry was in dire straits when it came to dollar finance, due to difficulty in procuring it, for hassle-free imports of roughs. "As banks finance in rupee value while rough diamond importers need dollar finance to avoid delays in imports of roughs."

It also takes generally two to three years to get refund of VAT in Maharshtra, he said.

Meeting these demands, which GJEPC has sent to the finance minister through a pre-budget memorandum, would mean that the government was serious towards its commitment to make India a hub for diamond processing. Otherwise, the industry will have no option to lay off jobs in order to cut costs, said Kothari.

The diamond processing industry is presently working at a margin of 2-2.5 per cent which means any hike in the price of roughs or a slowdown in sales inevitably leads to rise in inventory with bruised margins.

Although the industry has seen a 10 per cent hike in the price of roughs recently, a threat of a similar hike looms.

India is fast losing business to mining countries like South Africa, Israel, Namibia etc where a large portion of roughs is processed.

However, Indian companies are taking a cautious approach towards beneficiation activities in mining countries due to difficulty in rough procurement and uncertainties over quality.

Therefore, a number of large export houses have started setting up processing facilities near mining sites.

India's diamond exports to the US have declined about 10-15 per cent and new orders have dried up. Last year, India exported about 80 per cent of total shipment, or $11 billion in value, to the US.