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It noted that currently, gold can be imported from Dubai at 5 per cent duty, but this will drop to zero in three years if the alloy contains 2 per cent platinum | Representative Image
Think tank GTRI on Tuesday expressed serious concerns over spurt in import of precious metals from the UAE under a free trade agreement and demanded an investigation as it is impacting domestic jewellery industry and leading to potential annual revenue loss.
The Global Trade Research Initiative (GTRI) said that by addressing these issues, authorities can ensure the integrity of import practices, safeguard domestic industries, and prevent significant revenue losses.
Seeking an urgent review of the agreement, it said the India-UAE comprehensive economic partnership agreement (CEPA) allows unlimited imports of gold, silver, platinum, and diamonds from the UAE into India with zero tariffs in the coming years.
This will lead to significant “annual revenue losses, move import business from banks to a few private traders, and replace top suppliers with Dubai-based firms,” it said in its report.
“The zero-tariff policy under CEPA is projected to cause an annual revenue loss of Rs 63,375 cr due to duty-free imports of gold and silver, based on FY2024 import levels,” it said.
It will also disrupt the domestic diamond and jewellery industry, with major imports coming from Gift City, which has transparency issues. An urgent review is needed, the report added.
It noted that currently, gold can be imported from Dubai at 5 per cent duty, but this will drop to zero in three years if the alloy contains 2 per cent platinum.
Similarly, it said, silver imports from the UAE have surged due to an 8 per cent duty under CEPA, compared to a 15 per cent duty in general, resulting in a significant tariff arbitrage.
“CEPA tariff concessions are hurting India’s jewellery industry, with gold jewellery imports from the UAE increasing due to lower tariffs,” it said adding zero tariffs on cut and polished diamonds under CEPA threaten India’s domestic diamond industry, which currently benefits from zero duty on rough diamonds and a 5 per cent duty on cut and polished diamonds.
An e-mail query sent to the commerce ministry on the report did not elicit any response.
“The value addition process for silver imports is questionable, with concerns about money laundering. This is the reason for the shift of silver imports from Indian ports to GIFT City exchange to benefit from concessional tariffs,” it said.
With regard to imports being routed through GIFT city, GTRI Founder Ajay Srivastava suggested that there should a CAG audit to investigate pre-arranged deals and invoice manipulation.
He explained that the trade pact contains provisions that allow unlimited imports of duty-free gold, silver, platinum, and diamonds into India over the next few years.
CEPA allows unlimited import of gold from Dubai at 5 per cent duty now and at zero tariff in next three years if the imported metal contains just 2 per cent platinum and 98 per cent gold.
Platinum of value $ 1.2 billion was imported from Dubai in FY2023.
“The tariff concessions under CEPA will significantly hurt India’s jewellery industry. Under the India-UAE CEPA, India agreed to reduce tariffs on gold jewellery by one per cent each year, from 20 per cent to 15 per cent over five years, with a tariff rate quota (TRQ) or import limit of 2.5 tonne,” it said.
Further, it said that the zero tariff on cut and polished diamonds under CEPA will “significantly harm” the Indian diamond industry.
Currently, India imports rough diamonds, which are then cut and polished domestically before being exported.
To promote this local industry, India imposes zero duty on rough diamonds and a 5 per cent duty on cut and polished diamonds.
“However, under CEPA, cut and polished diamonds can be imported at zero duty if they meet a 6 per cent value addition in Dubai.
On silver, it said the import surge is driven solely by the tariff arbitrage.
“Most imports do not meet Rules of Origin conditions and hence do not qualify for concessions. To supply silver granules to India, Dubai firms import silver bars from Russia and other countries, convert them into granules, and claim a 3.5 per cent value addition in this process. Less than 0.5 per cent value addition accrues in this process,” Srivastava claimed.
He said that whole operation is problematic because silver bars command a higher price than silver granules of the same purity in the market.
Silver bars are preferred for investment due to their standardized shapes and sizes, making them easier to trade, he said adding granules are less common and may be trickier to find buyers for.
“Since December 2023, all silver imports from Dubai at concessional tariffs have been cleared through the customs at Gift City exchange. The key concern is how imports cleared through Gift City meet the rules of origin requirements specified in the India-UAE agreement when importers from other port fail to meet these,” he added.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Jul 16 2024 | 3:50 PM IST
