Gems & Jewellery in India: Schemes, Challenges and the Way Forward.

India’s gems and jewellery sector has long stood as one of the crown jewels of its export economy. But in recent years, changes in global demand, evolving technologies, and regulatory shifts have tested the resilience of this industry. This article presents a holistic analysis of the sector’s incentives and schemes, import-export dynamics, tax implications, regulatory hurdles, competition from lab-grown and imitation jewellery, and possible paths ahead.

The Strategic Importance of Gems & Jewellery

India’s gems and jewellery exports constitute a significant share of its merchandise exports, providing employment to millions, especially in the small and medium segment, and serving as a conduit for value addition. Yet, the industry is input-intensive: much of the raw material—rough diamonds, gemstones, precious metals, mountings, findings—must be imported. The sector’s competitiveness thus depends heavily on trade policy, tax concessions, logistics, and ease of doing business.

Import–Export Patterns: The Value Chain

Imports: Feeding the Value Chain

To produce finished jewellery, Indian manufacturers import:

• Rough diamonds and gemstones, for cutting and polishing;
• Semi-processed stones, mountings, findings, clasps, frames, etc.;
• Metals (gold, silver, platinum) or alloys, often imported under strict rules;
• Special machinery and tools needed in the manufacturing process.

Under the foreign trade policy, many of these imports are permitted duty-free or at concessional rates if used by exporters (“actual user” basis). There are also replenishment schemes—e.g. import of cut & polished stones up to 5 % of FOB export value—to support re-exports.

Gold imports are tightly regulated, with only nominated agencies or export units allowed to bring in bullion under specified conditions. Sample imports (jewellery prototypes, gemstone samples) are granted limited duty exemptions.

Exports: Capturing Value-Added Margins

On the export side, India ships:

• Cut & polished diamonds and coloured gemstones
• Finished jewellery (gold, silver, platinum, studded, non-studded)
• Semi-precious and fashion jewellery

Exports are facilitated by schemes such as zero-rated GST (i.e. 0 % on export supplies), duty remission schemes, and DGFT export incentives. Further, exporters use tools like Diamond & Jewellery Dollar Accounts (DDA) to manage currency risk and to finance imports using export proceeds.

Incentive, Promotion & Export Schemes

The Indian government has instituted a variety of schemes aimed at supporting the gems & jewellery sector. Key among them:

DGFT / Foreign Trade Policy & EXIM Incentives

1. Duty-free procurement and export promotion
   Exporters may import (or procure domestically) inputs without paying duties (excluding IGST/cess) provided they use them for manufacture of exportable products. This is tightly controlled via value-addition norms and documentation.
2. Replenishment / 5% cut & polished import scheme
   Exporters of cut & polished diamonds or studded jewellery may import cut & polished diamonds up to 5 % of FOB export value (on actual user basis), for re-export.
3. Re-import of rejected jewellery
   Jewelry rejected by overseas buyers (typically for defects) may be reimported duty-free up to 2 % of previous year’s export value.
4. EPCG (Export Promotion Capital Goods) scheme
   Allows import of capital goods at concessional duty, subject to export obligations. This helps in upgrading manufacturing capability.
5. RoDTEP (Remission of Duties & Taxes on Exported Products)
   Launched to refund embedded duties and taxes not otherwise exempted, thereby lowering export cost disadvantages.
6. Diamond Imprest License
   Recently reinstated, this allows eligible exporters to import cut & polished diamonds (within limits) duty-free, subject to constraints such as minimum 10 % value addition and no resale.

Customs & Duty Reliefs

• Customs duty on jewellery (HSN 7113) was reduced from 25 % to 20 %.
• Platinum findings attract a 5 % basic customs duty.
• Some small cut & polished diamonds (= 0.25 carat) under the Imprest scheme attract NIL IGST.

These reliefs aim to lower input cost burdens and maintain competitiveness in export markets.

GST Incentives & Reforms

• Zero-rated supplies for exports: Goods and services exported are taxed at 0 %, allowing exporters to claim input tax credits and refunds.
• Reduced GST rates for sector-specific items:
  • Semi-precious stones: reduced from 3 % to 0.25 %.
  • Job work services in diamonds: reduced from 5 % to 1.5 %.
  • Packaging / jewellery boxes: GST rate lowered from 12 % to 5 %.
  • IGST exemption for small cut diamonds (= 0.25 ct) imported under Imprest scheme.

These amendments ease cash flow strain, reduce tax burden, and improve global pricing competitiveness.

Income Tax & General Tax Provisions

While there is no distinct concessional corporate tax regime for gems & jewellery, exporters benefit through:

• Depreciation allowances for machinery and equipment;
• Deductibility of expenses, including import duties (when not exempt);
• Incentives available under general export support policies;
• Handling of inventory, valuation, and exchange rate fluctuations becomes a critical financial tax planning input.

Restrictions, Regulatory Challenges & Bottlenecks

Despite the elaborate incentive framework, several constraints hamper the sector’s full potential:

Cash Flow & Finance Constraints

Exporters face long lead times—importing raw materials, manufacturing, quality checks, shipping—which tie up capital. Even when duty exemptions exist, working capital support is weak, particularly for smaller players.

Procedural & Compliance Complexity

Multiple overlapping regulations from DGFT, Customs, GST authorities, and RBI make compliance burdensome. Errors in classification, documentation, certifications often result in delays, assessments or penalties.

Infrastructure & Technology Gaps

Many units remain small, artisanal, and backward in technology—relying on manual processes, lacking design capabilities, automation, computer-aided manufacturing. This limits productivity, quality, and ability to cater to premium markets.

Certification, Traceability & Transparency

As consumer awareness grows, buyers demand provenance, certification, and clarity (especially distinguishing natural from lab-grown stones). Enforcement of labelling norms, metallurgical purity claims and origin verification is weak, causing trust deficits.

Global Barriers & Volatility

Exporters face tariff fluctuations, anti-dumping threats, import barriers in destination markets, and sudden regulatory changes. They compete not only on price, but on regulatory compliance, quality, and assurance mechanisms.

Smuggling & Leakage

Illegal imports or gold/gem smuggling, circumvention of quotas, opaque channels persist, eroding the formal industry’s competitiveness and revenue for the exchequer.

Competitive Pressure from Lab-Grown & Imitation Jewellery

• Lab-grown diamonds have become increasingly cost-competitive, often selling at steep discounts (even ~65 % lower) compared to natural stones.
• Their adoption is rising globally, pressuring demand for natural gems.
• Imitation / fashion jewellery made from synthetic crystals, base metals or plated materials competes in price-sensitive segments.
• The industry is thus forced into a low-margin game unless it shifts focus to differentiation, branding, high quality and authenticity.

Role of Export Promotion Councils & Institutional Support

The Gems & Jewellery Export Promotion Council (GJEPC) plays a vital role:

• Organizing trade fairs, buyer–seller meets, overseas promotions, marketing and branding initiatives.
• Supporting infrastructure projects (jewellery parks, common facilities, design centres).
• Facilitating liaison with government, offering feedback on policy, advocating for incentives, and capacity building for small exporters.
• Conducting training programs, design workshops, gemological knowledge transfer, cluster development.

Government initiatives often partner with such councils to deploy subsidy schemes, infrastructure funding, and export development missions.

Way Forward: A Roadmap for Revival & Growth

To steer India’s gems & jewellery sector toward renewed global leadership, the following strategies are essential:

1. Simplify, Stabilize & Digitize Incentive Schemes
   Reduce procedural friction, harmonize across agencies, ensure predictability and limit discretionary retroactive changes. Expand digital claim processing and refund settlement mechanisms.
2. Support MSMEs & Cluster Development
   Enable small exporters to access credit, export entitlements, infrastructure. Promote aggregation, cooperatives, shared facilities and access to common manufacturing units.
3. Upgrade Technology & Promote Design / Brand Orientation
   Encourage adoption of CAD/CAM, laser cutting, automation, AI-based design, quality testing labs. Incentivize R&D, tie-ups with academic institutions, incubators. Focus on building homegrown brands, luxury lines, export-oriented collections.
4. Enhance Certification, Traceability & Standards
   Build a credible domestic hallmark / gemstone certification regime, mandate labelling norms, enforce identity standards (especially for lab-grown stones). Strengthen gem labs and testing infrastructure.
5. Balanced Policy for Natural vs Lab-Grown Segments
   Offer calibrated incentives for domestic lab-grown production if strategically desired, but also protect natural gemstone segment via anti-dumping checks, origin verification, and support for differentiation.
6. Strengthen Trade Diplomacy & Market Access
   Proactively negotiate tariff concessions, resolve non-tariff barriers, utilize FTAs/CEPAs. Diversify export markets beyond traditional ones, encourage e-commerce exports and direct brand presence overseas.
7. Improve Logistics & Customs Efficiency
   Expand jewellery parks, bonded warehouses, fast track customs, priority clearances, simplified import/export processes, last-mile customs facilitation.

Conclusion

The gems & jewellery sector in India is at a crossroads. While its legacy strengths in craftsmanship, cluster ecosystems, and global networks remain assets, the confluence of rising global competition, regulatory complexity, and the disruptive rise of lab-grown alternatives demand bold reform. India must transition from being a low-cost processing centre to a centre of design, authenticity, brand value, and innovation.

By aligning incentives, easing compliance, investing in technology and certification, and carefully navigating the balance between natural and synthetic segments, India can reclaim momentum in global jewellery trade—and ensure that its heritage of gemstone excellence remains relevant in the 21st century.