Achhe Din for diamond traders, RBI allows jewellery trade 180 days to repatriate export proceeds
RBI recently relaxed the norm for suppliers’ and buyers’ credit for importing rough, cut and polished diamonds for 180 days, from the existing 90 days, from the date of shipment. The move was initiated by RBI after traders’ continuous efforts to bring the credit cycle period back to 180 days, which was reduced to 90 days by RBI in 2011.
The Reserve Bank of India (RBI) has relaxed the norm for suppliers’ and buyers’ credit for importing rough, cut and polished diamonds for 180 days, from the existing 90 days, from the date of shipment. This has been done in view of the difficulty faced by jewellery exporters in receiving remittances for exports within 90 days from the date of shipment.
With expectations running high from the first budget of the Narendra Modi government at the Centre, a delegation of diamond traders and representatives of Gems and Jewellery Export Promotion Council (GJEPC) had earlier met the Union Finance Minister, Arun Jaitley in New Delhi demanding extension in the suppliers’ credit cycle.
“The burning issue for the diamond traders is the suppliers’ credit cycle, which was earlier 180 days and reduced to 90 days in 2011. We had demanded to restore the credit cycle back to 180 days and the minister has assured us to look into it,” Vipul Shah of GJEPC said. The import payment credit limit was reduced from 120 days to 90 days by the Reserve Bank of India (RBI) in 2011. This posed a major challenge for the diamond traders. If the 90-day period got lapsed, then they would require getting permission from the RBI to make the payment which will further delay the process. Also, currency fluctuations during this period would result into additional burden along with the interest cost for diamond traders.
Many diamond mining companies including De-Beers, Rio Tinto, Alrosa are already lined up to start their offices in India. “But India’s complex tax structure is a deterrent. If mining companies open their offices here, traders will easily get their raw material. Already 8-10 companies are lined up for setting up offices here,” said Shah.
At least 350 small and medium diamond companies in the world’s biggest diamond cutting and polishing centre in Surat are facing severe financial problems with Indian banks strictly implementing the 90 days credit limit for overseas payment to rough diamond dealers in Antwerp and Dubai for the past four months. The Gems and Jewellery Export Promotion Council (GJEPC) and the Surat Diamond Association (SDA) have urged the Central and the state governments to increase the credit limit for payment up to 245 days.
As per a circular by Reserve Bank of India (RBI) in 2011, the payments due to the overseas buyers had to be done within 90 days and the banks were strictly asked to turn down payments beyond 90 days. The diamantaires, who import rough diamonds from Antwerp and Dubai on credit, had to compulsorily make payment within 90 days as per the RBI circular.
The diamantiares have been questioning the 90 days credit limit offered by the RBI by saying that the diamonds pass through various stages of manufacturing levels. With the announcement, diamantaries are contended and hope to see better tomorrow.
AS per the notification issued by RBI’s Foreign Exchange Department on Monday, the clean credit i.e credit given by a foreign supplier to its Indian customer/buyer, without any letter of credit/letter of undertaking/fixed deposits from any Indian financial institution for import of rough, cut and polished diamond, may be permitted for a period not exceeding 180 days from the date of shipment.
The RBI has asked the banks to ensure that due diligence are undertaken and KYC norms and anti-money laundering standards are adhered to while undertaking the import transactions. Further, any large or abnormal increase in the volume of business should be closely examined to ensure that the transactions are bonafied.
Dinesh Navadia, president, Surat Diamond Association (SDA) told TOI, “The RBI’s notification has come as a big relief for the diamantaires. Now, the diamantaires have enough time to process the rough diamonds and make payments to the sellers in 180 days”