Chennai: Dubai has overtaken Antwerp in Belgium as the dominant rough diamond supplier to India. The emergence of Dubai has rendered India’s Special Notified Zones in Mumbai and Surat largely ineffective as diamond trading hubs.
Dubai does not produce diamonds yet its share in India’s import of rough diamonds is increasing steadily. Dubai imports rough diamonds from Bostwana, Angola, South Africa, and Russia and re-exports these to India. Belgium’s share of India’s rough diamond imports dropped from 37.9 per cent in FY20 to 17.6 per cent in FY24, according to GTRI.
Meanwhile, Dubai’s share increased from 36.3 per cent in FY20 to 60.8 per cent in FY24 and further to 64.5 per cent in April-June 2024. A major reason for the higher share of Dubai is India’s high corporate tax regime applicable for foreign suppliers of rough diamonds. This forces them to re-export diamonds to Dubai and export from there to India. This has rendered India’s Special Notified Zones (SNZs) in Mumbai and Surat largely ineffective.
As per GTRI, to make the Special Notified Zones (SNZs) in Mumbai and Surat successful and establish India as a diamond trading hub, it is important to exempt foreign rough diamond sellers from corporate tax. These zones, set up in 2015, allow international diamond mining companies to display rough diamonds for Indian buyers, helping India become a global diamond trading hub. However, the 40 per cent corporate tax on foreign firms selling diamonds in India has made the SNZs unattractive. As a result, companies are re-exporting rough diamonds and finalizing sales in the UAE to avoid high taxes.
In the 2024 budget, a new policy was introduced to lower corporate tax on foreign firms selling diamonds directly in India and the new rates expected by December 2024. To compete with the UAE, India should exempt these foreign firms from corporate tax when selling through SNZs and treat such sales as regular imports subject to import duties, not corporate tax. Without this change, India is losing out to Dubai, which benefits from these transactions at India's expense.
The government should also reconsider zero tariff import of cut and polished diamonds from Dubai under India-UAE CEPA. Currently, India imports rough diamonds duty-free, cuts and polishes them locally, and imposes a 5 per cent duty on imported cut and polished diamonds. Under the India-UAE CEPA, cut and polished diamonds can now be imported at zero duty with just 6 per cent value addition in Dubai. This change will put significant pressure on the margins of domestic manufacturers, who may struggle to compete with zero-duty imports from Dubai. Many local businesses could be forced to shut down or relocate, leaving importers and traders to dominate the market to the disadvantage of domestic producers.
