Business Today

Slew of worries dog diamond merchants

The industry, which has a workforce of more than 1 million, struggles to find the much needed 10-15 per cent additional labourers every year for business expansion.

twitter-logo Nevin John        Last Updated: February 20, 2015  | 16:35 IST
Slew of worries dog diamond merchants
The diamond merchants expect that the finance minister would come up with policy boosts to clear these issues, in addition to simplifying the mired tax structure. (Photo: Reuters)

Nevin John, senior editor, Business Today
India's diamond cutting and polishing industry, which handles 95 per cent of the world's work, has a slew of lingering worries to be addressed at the policy front when the finance minister Arun Jaitly stands up to present the Modi government's first full Budget.

The industry, which has a workforce of more than 1 million, struggles to find the much needed 10-15 per cent additional labourers every year for business expansion.

Secondly, nationalised banks are sceptical about financing the medium and small-sized players in the segment.

They expect that the finance minister would come up with policy boosts to clear these issues, in addition to simplifying the mired tax structure.

Aagam Sanghavi, director, Sanghavi Exports International in Surat says the industry is highly labour intensive and capital intensive. "We use laser technology to cut diamonds nowadays. But you can't polish it with any other technology. The industry needs workers for handling the tools. So it will continue to be labour-intensive," says Sanghavi.

It takes 2-3 years for acquiring skills for diamond cutting and polishing. So the educated workforce is unwilling to invest time for joining the industry.

Another issue is that nearly 5-7 per cent of aged workers retire every year. There are not enough people available to replace the retiring workers.

Dinesh Navadiya, President, Surat Diamond Association (SDA) says that Gujarat alone has 8-9 lakh workers in the diamond industry. "Surat has about 5 lakh people. We give Rs 15,000-20,000 to freshers in the industry, compared to Rs 10,000-15,000 for clerical jobs in other industries. In this industry, the highest salary would be Rs 25 lakh per annum for a highly skilled worker. The employee cost would be 30-40 per cent of the expense for the industry."

He adds that there is a huge opportunity for entrepreneurship in the diamond industry. For the basic learning, government-owned and private institutes have opened up. After the training, they could start their own businesses and sell products via online. Investments are less compared to opening a jewellery shop while doing online business. "During the last Christmas, the online sale share was about 40 per cent of overall in Surat. These are domestic orders. Overseas orders come in bulk," Navadiya says.

SDA has set up camps in agrarian tribal areas for training the people for the industry. "We told them that there is no need for education to become a worker in the industry. They don't want to come to cities. So we started factories in Narmada district. We opened about 200 factories there. Women have started working the industry for the first time. Since population is high there, people are ready to join the industry. There are about 25,000 people would be working in 200 factories now."

For maintaining the force, the factory owners give incentives like gas stove and TV to those who work continuously for six months, plus they also get transportation every day.

The diamond industry in India is itself a make in India story. For several years after Independence, the nation's economy was in depression. Several avenues for business and commerce opened up as new policies came into place.

The journey towards progress and development for the Indian diamond industry also began around then. About three decades ago, the industry was a scattered cottage industry. It has gradually evolved into a modern, mechanised, large-scale operation.

The industry is highly capital intensive because of the high cost of raw materials. While larger companies have professional teams to handle fund raising, SMEs are suffering with banks barely lending to them. "The government should advise PSU banks to provide funding assistance for the growth of SMEs, which are the backbone of the industry. There needs to be a special banking policy for diamond industry. There needs to be subsidies and relaxations in securities," adds Sanghavi.

The scepticism of banks is another worry. Only a few banks are lending including State Bank of India and Bank of India. "Private banks are unwilling to lend. Customer payments are traditionally late in this business and that is the reason for banks' reluctance. The payments vary from 45 to 120 days after the shipments," Sanghavi says.

"It's a scary situation if our customer goes bust. We need insurance cover for ring fencing the business," adds Sanghavi. The government of India had set up Export Credit Guarantee Corporation of India (ECGCI) for providing risk cover for the customers. "But now they are reluctant in giving credit guarantee to all of our customers. They are selective and giving limited coverage, saying we don't have enough funds. If India wants to become a manufacturing power house for the rest of the world, the government needs to clear all these hurdles."

SMEs in the industry get less finance also because most of them don't form private limited companies. "In fact, 70 per cent of the work is done by SMEs. There are schemes for supporting them, but banks are not implementing. The interesting aspect is that the SMEs have not backstabbed the banks by defaulting, unlike the big players. Big players shut their shops and open a new one when they go bust. Banks are still ready to pay for them," Navadiya says.

Clearing the air around taxation should be another milestone. Valuation of diamond is subjective and the prices are constantly changing. There are 1,000 different qualities of diamond, making it tough to value and fix income tax and customs duties. "That's why we asked for a turnover tax regime or presumptive tax system. Then tax would be based on the turnover. It will make things simple. For domestic sales, VAT and sales tax are also applicable. GST also can't clear the issues. The inventory valuation will always be complex after GST," adds Sanghavi.

International diamond miners don't have offices in India because of these complexities in taxation. The industry imports rough diamond from Africa, Russia, Belgium and Dubai.

Mining companies have their offices in Singapore, Dubai, Hong Kong and Antwerp. About 95 per cent of the worlds diamonds come to India, but they don't want to sell here because of these reasons.

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