In what is seen as a move to check the round-tripping or repeated export and import of same diamonds prevalent in the Indian diamond industry, the union finance ministry has imposed a two per cent duty on the import of cut and polished diamonds in the country.
Sources said that the then finance minister P Chidambaram had scrapped the three per cent import duty on cut and polished diamonds in the 2007-08 budget, opening up the world market for the Indian diamond industry.
But, the recent developments in the industry related to the bank frauds running into Rs.2,500 by some of the leading diamond companies involved in the round-tripping of the polished diamonds is said to have forced the Central government to keep the imports under the scanner of the customs department.
The diamond traders, in the past have risked the bank loans, in a scheme of round-tripping, to cover losses and possibly carry out speculative deals. The practice uses cheap finance to cover repeated export of the same diamonds imported from their overseas firms, while funds shore up the balance sheet and appear to list increased turnover.
"The government seems to have woken up very late. There was rampant round-tripping of polished diamonds going on in the industry from the last couple of years since the day the three per cent import duty was scrapped in 2008," said a DTC sightholder.
As per the statistics of the Gems and Jewellery Export Promotion Council (GJEPC), India exported $28 billion worth of polished diamonds in 2010-11 and imported $20 billion worth of polished diamonds against the import of $11 billion worth of rough stones.
"I think the Central Government has taken a wise decision by imposing two per cent import duty on the polished diamond. The country will earn foreign exchange by charging import duty on the polished diamonds," said Sanjay Kothari, vice-chairman of GJEPC.