1.

The balance of payments (BOP) is the method countries use to monitor all international monetary transactions at

a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by
both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and
out of a country. If a country has received money, this is known as a credit, and if a country has paid or given money, the
transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities
(debits) should balance, but in practice this is rarely the case. Thus, the BOP can tell the observer if a country has
a deficit or a surplus and from which part of the economy the discrepancies are stemming.
The Balance of Payments Divided
The BOP is divided into three main categories: the current account, the capital account and the financial account. Within
these three categories are sub-divisions, each of which accounts for a different type of international monetary transaction.
The Current Account
The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments,
both public and private, are also put into the current account.
Within the current account are credits and debits on the trade of merchandise, which includes goods such as raw
materials and manufactured goods that are bought, sold or given away (possibly in the form of aid). Services refer to
receipts from tourism, transportation (like the levy that must be paid in Egypt when a ship passes through the Suez
Canal), engineering, business service fees (from lawyers or management consulting, for example) and royalties
from patents and copyrights. When combined, goods and services together make up a country's balance of trade (BOT).
The BOT is typically the biggest bulk of a country's balance of payments as it makes up total imports and exports. If a
country has a balance of trade deficit, it imports more than it exports, and if it has a balance of trade surplus, it exports
more than it imports.
Receipts from income-generating assets such as stocks (in the form of dividends) are also recorded in the current
account. The last component of the current account is unilateral transfers. These are credits that are mostly worker's
remittances, which are salaries sent back into the home country of a national working abroad, as well as foreign aid that is
directly received.
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The Capital Account
The capital account is where all international capital transfers are recorded. This refers to the acquisition or disposal of non-financial
assets (for example, a physical asset such as land) and non-produced assets, which are needed for production but have not been
produced, like a mine used for the extraction of diamonds.
The capital account is broken down into the monetary flows branching from debt forgiveness, the transfer of goods, and financial
assets by migrants leaving or entering a country, the transfer of ownership on fixed assets (assets such as equipment used in the
production process to generate income), the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance
taxes, death levies and, finally, uninsured damage to fixed assets.
The Financial Account
In the financial account, international monetary flows related to investment in business, real estate, bonds and stocks are
documented. Also included are government-owned assets such as foreign reserves, gold, special drawing rights (SDRs) held
with the International Monetary Fund (IMF), private assets held abroad and direct foreign investment. Assets owned by foreigners,
private and official, are also recorded in the financial account.
The Balancing Act
The current account should be balanced against the combined-capital and financial accounts; however, as mentioned above, this
rarely happens. We should also note that, with fluctuating exchange rates, the change in the value of money can add to BOP
discrepancies. When there is a deficit in the current account, which is a balance of trade deficit, the difference can be borrowed or
funded by the capital account.
If a country has a fixed asset abroad, this borrowed amount is marked as a capital account outflow. However, the sale of that fixed
asset would be considered a current account inflow (earnings from investments). The current account deficit would thus be funded.
When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets
for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of
foreign capital in the BOP.
Liberalizing the Accounts
The rise of global financial transactions and trade in the late-20th century spurred BOP and macroeconomic liberalization in many
developing nations. With the advent of the emerging market economic boom - in which capital flows into these markets tripled from

USD$50 million to $150 million from the late 1980s until the Asian crisis - developing countries were urged to lift restrictions on
capital and financial-account transactions in order to take advantage of these capital inflows. Many of these countries had restrictive
macroeconomic policies, by which regulations prevented foreign ownership of financial and non-financial assets. The regulations
also limited the transfer of funds abroad.
With capital and financial account liberalization, capital markets began to grow, not only allowing a more transparent and
sophisticated market for investors, but also giving rise to foreign direct investment (FDI). For example, investments in the form of a
new power station would bring a country greater exposure to new technologies and efficiency, eventually increasing the nation's
overall GDP by allowing for greater volumes of production. Liberalization can also facilitate less risk by allowing greater
diversification in various markets
Features of Balance of Payments
Balance of Payments has the following features:
(i) It is a systematic record of all economic transactions between one country and the rest of the world.
(ii) It includes all transactions, visible as well as invisible.
(iii) It relates to a period of time. Generally, it is an annual statement.
(iv) It adopts a double-entry book-keeping system. It has two sides: credit side and debit side. Receipts are recorded on the credit
side and payments on the debit side.
(v) When receipts are equal to payments, the balance of payments is in equilibrium; when receipts are greater than payments, there
is surplus in the balance of payments; when payments are greater than receipts, there is deficit in the balance of payments.
(vi) In the accounting sense, total credits and debits in the balance of payments statement always balance each other

The balance of trade refers only to the merchandise or balance on visible transactions alone. In short, it is the difference between
the values of exports and imports of physical goods of a country during a given period of time. If the values of (visible items) exports
exceed the value of imports of visible items, it is said to be surplus or favorable balance of trade. The increased imports
of machinery, equipments raw material and oil prices have caused imports to grow faster. Causes of unfavorable balance of trade
are included in the causes of adverse balance of payments because of balance of payments refers to the sum of both the balance
on visible as visible as well as invisible items.
The balance of payments is a comprehensive record of economic transactions of the residents of a country with the rest of the
World during a given period of time. The aim is to present an account of all receipts and payments on account of goods exported
services rendered and capital by resident of a country and goods imported, services received and capital transferred y residents of
the country.
The Government through licensing system regulates imports and necessary adjustments are made between restriction
and relaxation of imports according to the requirement of the economy and the availability of foreign exchange earned through
exports. Steps should be taken to increase the agricultural production so as to eliminate food deficiency from the country and to
increase exportable surplus. The manufacturing industries should also be given necessary stimulation so that their production may
increase to replace imports
VISIBLE EXPORTS- are actual goods which are sold to other nations by domestic firms, like tables, TV's, and vehicles.
INVISIBLE EXPORTS- are services which are sold to other nations by domestic firms, like banking, insurance, and tourism
SWOT Analysis of Chemical Exports Sector
The Indian chemical industry has played an important role in the development of Indian economy. The industry includes basic
chemicals and chemical products, petrochemicals, agrochemicals, dyes, paints and varnishes, synthetic fibers and industrial gases.

Chemicals and chemical products is the second largest industry in the manufacturing sector after basic metals. The Indian
government sees the chemical industry as integral to the Indian economy and came out with a Draft National Chemical Policy in
March 2012, which intends to transform India into a major manufacturing hub of chemicals.
Despite uncertain conditions in global economy and slowdown in industrial production, the chemical industry performed better than
its historic average in the first nine months of FY13. The sector also outperformed the overall manufacturing sector in terms of
production during the second half of the year. Chemical exports were resilient and registered export growth in all the major
segments. However, chemical imports have been leading chemical exports for many years, resulting in a net trade deficit in the
sector. With growing concerns of widening overall trade deficit, the Indian government is embarking on plans to increase the
countrys chemical exports.
The long term outlook for Indian chemical sector is stable because of a growing construction sector, a large textile sector, and a
growing need for agrochemicals. The introduction of National Chemical Policy and other such government incentives will further add
to the growth of this sector.
Strengths
Most natural resources and long coastline is available.
Diversified skilled manpower, including entrepreneurial ability.
Growing middle class
Disposable incomes.
Low wages
Younger population
Weaknesses
Lack of Updated technology
Low investments in R & D.
Infrastructural problems in terms of power, Ports, roads, railways.
Low literacy levels about the fertilizers (except in a few colleges).
Low productivity and high rate of labor Death.
Cost of Transaction and Lending is high.
Opportunities
Combination of skilled manpower and Lower wage costs act as a catalyst to attract FDI.
Improvement in farm productivity.
Transform into an agro-products exporting Power, especially in fruits and vegetables.
Large graying population among wealthier Countries would compel them to outsource Many of their activities to lower cost
Suppliers like India.
Availability IT skilled professionals.
Threats
Higher labor productivity, world class Infrastructure and large manufacturing base Of China could make it difficult for India to Gain
a larger share of global exports.
Indias bilateral trade with China.
Annual trade deficit of $ 17 billion.
Lower cost competitors.
Following steps for the industrys future development: 30
1. Establishing an economically stable environment for continuous growth;
2. Increasing the competitiveness of the industry;
3. Improving the human resource quality;
4. Reducing the level of dissimilarities among different regions of the country so that natural resources
5. could be processed within their own regions;
6. Extend the ongoing improvements in governance.
Export of Gems and Jewellery the gems and jewellery sector has been one of the fastest-growing sectors in India in the past few
years. The sector has gained global popularity because of its talented craftsmen, its superior practices in cutting and polishing fine
diamonds and precious stones, and its cost-efficiencies. The sector has been vital to the Indian economy as well; during 2008-09,
the sector accounted for around 13% of the countrys total exports.
The gems and jewellery sector in India is engaged in sourcing, manufacturing, and processing, which involves cutting, polishing
and selling precious gemstones and metals such as diamonds, other precious stones, gold, silver and platinum.
Gold jewellery is the most preferred form of jewellery in demand in India as it is considered auspicious to purchase gold on major
occasions like festivals, marriage, birth etc. Also, gold occupies the second position among all investment instruments and is
considered as the safest investment option. According to the data released by the World Gold Council (WGC), India is the largest
consumer of gold. In 2008, India consumed approximately 660 tonnes of gold and accounted for 22.71% of the total gold

consumed all over the world, most of which was used in jewellery. Even though the gold demand remained weak, India continued
to maintain its second position in the third quarter-ended 2009 as well and accounted for 20.87% of the total gold consumed all
over the world.
India is also one of the largest diamond processor in the world and its artisans have specialised skills in processing small diamonds
(below one carat); in fact, the Indian craftsmen have achieved excellence in cutting and polishing small diamonds. However, the
real uniqueness of the Indian craftsmen lies in the fact that they do most of the cutting and polishing manually which sets India
apart from its other peers. India (especially, Surat and Mumbai) ranks among the big four diamond cutting centres of the world
the other three being, Belgium (Antwerp), the US (New York) and Israel (Ramat Gan). Currently, diamonds processed in India
account for 85% in volume, 92% in pieces and 60% in value of the total world diamond market.
The gems and jewellery sector in India is highly export-oriented, labour-intensive and a major contributor to the foreign exchange
earnings; therefore, the Indian government has declared the sector as a thrust area for export promotion.
Market Size and Structure The sector is highly-fragmented and unorganised, and is characterised by family-owned operations.
Around 96% of the gems and jewellery players have family-owned businesses, but, over the last few years, more organised players
have been entering the sector. The products in the sector can be categorised as gemstones, jewellery and pearls, which can be
further segmented into diamonds, coloured stones (precious, semi-precious and synthetic), studded jewellery, costume jewellery,
gold and silver.
However, diamond and gold are the two most important segments of the Indian gems and jewellery sector. Diamond processing in
the form of cutting and polishing is a major industry in India. However, a majority of these processed diamonds are exported either
in polished form or as diamond jewellery globally. On the other hand, the gold jewellery is mostly meant for domestic consumption
as India is the largest consumer of gold.
The Gems & Jewellery sector occupies a prominent place in the Indian economy in terms of its export earnings, employment
generation, and growth. According to the estimates of Assocham, in CY 2008, the total market size of the sector was US$ 23.44 bn,
out of which exports garnered the largest share of 90.45% at US$ 21.20 bn. and the domestic market accounted for 9.55% at US$
2.24 bn. According to the Economic Survey 2006-07, India had a market share of just around 3% in the global gems and jewellery
sector, which was worth around US$ 80 bn annually.
Gross Bank Credit to the Sector The sector is well-supported by government policies and the banking sector. According to the
report by the RBI on Gross Bank Credit (GBC), credit to the gems and jewellery sector has registered a CAGR of 11.55% (2006-09)
and increased from Rs 205.59 bn as on March 31, 2006 to Rs 285.37 bn as on March 31, 2009. The gems and jewellery sector
accounted for 2.71% of the total GBC disbursed during the period. However, it is observed that the sectors share as on March 31,
2009, in the total GBC deployed to the industry has declined to 2.71% from 3.73% as on March 31, 2006.
Market Characteristics
Unorganised Sector The gems and jewellery sector in India has been known for its highly-fragmented and unorganised nature
and for the plurality of family-owned operations. However, the organised sector is also growing. Even though it has been growing
slowly, in future, it is likely to garner a substantial share of the market due to the changing lifestyle and preferences of consumers.
Labour-Intensive As the sector is highly labour-intensive, its dependency on craftsmanship is very high. For instance, the cutting
and polishing of diamonds and coloured gems, which are soft stones, requires immense care on the part of the labourer. Although
some activities in the cutting and polishing of gems are mechanised, the sector still requires skilled craftsmen to achieve precision
in diamond cutting.
Working Capital-Intensive The labour-intensive nature of the sector makes it more working capital-intensive as well (working
capital amounts to a substantial part of capital employed). This is due to the higher turnaround time in manufacturing and the
regular payment of wage bills. There is a considerable time gap between the import of raw materials and sale of finished products,
especially in diamond processing, as cutting and polishing are time-consuming tasks.
Raw Material-Intensive Gemstones (both rough and finished) and precious metals such as gold, silver, and platinum are the raw
materials used in the sector. The prices of these raw materials directly affect the profitability of companies. In recent years, the
prices of low-quality rough diamonds and higher quality stones, such as solitaires, have gone up, but as the polished diamond
prices have not been increasing at the same rate, the margins of exporters have been under pressure.

Import Dependency for Raw Materials The gems and jewellery sector is highly-dependent on imports for its raw materials and
among these raw materials, rough diamonds account for more than 50% of imports. These rough diamonds are cut, polished, and
re-exported. According to the World Gold Council, the consumer demand in India for gold in 2008 was 660.20 tonnes. Besides,
India is also one of the largest importers and biggest consumers of silver in the world, according to the Bombay Bullion Association.
Export-oriented the Indian gems and jewellery sector is one of the foremost examples of export-led growth. Gems & Jewellery
exports have been accounting for over 15% of total exports from India consistently since FY91. However, being export-dependent
makes the sector susceptible to foreign currency volatility.
Value Chain of the Sector
Value Chain Diamonds: Diamonds pass through a series of processes before they are finally sold in the retail market. The
value chain of diamonds begins with exploration of diamonds from mines and is followed by processing, manufacturing, whole
selling and retailing.
Mining There are very few commercially-viable diamond mines operating in the world currently. Diamonds are sourced through
three ways, open pit mining, underground mining and extraction from alluvial deposits. The rough diamonds that are sought from
mining are then sorted in different categories according to the quality, shape, colour, and size. The diamonds that are not good in
quality are used for industrial purposes and the good quality diamonds are sent for further processing.
Processing: Processing is the next and the most important step as the greatest value addition takes place at this stage.
Diamonds are sorted, graded, and valued at this step and then sent for further processing. Not all countries that produce diamonds
also process it. The sorted and graded diamonds are sent to the cutting and polishing centres such as Antwerp (particularly highvalue diamonds), Tel Aviv, Israel (for medium-value diamonds), India (for low value diamonds), China, Johannesburg, New York
and Thailand. These processed diamonds are then exported or sold in domestic markets as finished diamonds or as diamondstudded jewellery.
Manufacturing and Retailing Once the diamonds are processed, they are then sold to manufacturers directly or through
registered diamond exchanges. Much of the value addition is done at this stage, as the diamonds are converted into jewellery.
Jewellery making has high margins and therefore, many cutting and polishing centres across the globe are aiming to move up the
value chain to gain maximum revenue. The jewellery that is manufactured from the diamonds is sold either through a wholesaler or
directly in the retail market, domestically or internationally.
India is not a major miner of precious metals and stones such as diamonds but it is the largest processor of diamonds in the world
owing to its skilled labour and low cost of processing.
Value Chain Gold South Africa is the largest producer of gold in the world. Gold mining, the process of mining gold out of the
earth, is done through the following methods: hard rock mining, gold ore processing, placer mining and by-product gold mining. The
gold that is extracted from mines is in impure form, and it is obtained in its purest form through a series of chemical processes
called refining. The gold that is refined is converted into cast bars/gold bars through fabrication. The fabricated gold is then used for
either making jewellery or for making coins, industrial products and dental products jewellery fabrication garners the highest
share among the value chain activities. The gold jewellery is then sold in the retail outlets in domestic as well as international
markets.
Global Sources of Gold and Diamonds
Traditional Diamond-Producing Regions Diamond reserves are mostly located in Western Australia and Southern Africa.
According to the Kimberley Process Certification Scheme data, the leading diamond-producing countries in 2007 were Russia
(23%), Botswana (20%), the Congo (17%), Australia (11%), Canada (10%), South Africa (9%) and others (10%), which include
countries such as Namibia, Brazil, Sierra Leone, Tanzania and Ghana. However, other non-traditional regions such as former
Soviet Union and China, which are believed to have diamond deposits, remain underexplored.
De Beers De Beers is one of the largest diamond miners in the world and controls majority of the diamond supply and production
(almost 40 to 43% ) of the world. De Beers has mines in South Africa, Botswana, Tanzania, and Namibia. It buys diamonds from
members across the globe through the central selling organisation (CSO) and sells them through its marketing arm - the Diamond
Trading Corporation (DTC) - located in London. Rio Tinto and BHP Biliton are the other major diamond producers.

Indias Diamond and Gold Sources Production of raw material including gold and diamond is negligible in India; thus, the Indian
gems and jewellery sector is heavily dependent on imports for its raw material supply.
Until the eighteenth century, India was the only known source of diamonds to the world; diamonds were discovered in India around
8,000 B.C. The country was home to many well-known diamonds such as the famous Koh-i-Noor, the Pitt or Regent, the Orloff
(Orlov) and the Hope; however, as new sources of diamonds were discovered in Latin America and South Africa, India gradually
lost its importance as a diamond producer. Ironically, India has only one primary source of diamond deposit today, the Majhgawan
diamond mine in Panna district in Madhya Pradesh.
India gets most of its diamonds from De Beers/CSO diamonds, the Rio Tinto-controlled Argyle mine in Western Australia and
through a small but growing illicit trade in diamonds smuggled out of Russia.
Though India is not a major producer of precious metals and gemstones, it does have noteworthy reserves of gold, ruby, diamond,
emerald, sapphire and other precious stones. States such as Andhra Pradesh, Chhattisgarh, Jammu and Kashmir, Karnataka,
Kerala, Madhya Pradesh, Orissa, Rajasthan and Tamil Nadu are the centres of various varieties of gemstones in India. Andalusite,
apatite, beryl, brown sunstone (feldspar), chrysoberyl (including alexandrite), diamond, diopside, emerald, fluorite, garnet,
hessonite, idocrase, iolite, kornerupine, kyanite, quartz (amethyst, rose quartz), ruby, rhodolite, sapphire, sillimanite, sphene,
spinel, tourmaline and zircon are the varieties of gemstones found in India.
Even though Indias geological environment is similar to that of Africa and Australia, two of the top gold-producing countries of the
world, its gold production is insufficient. The gold exploration in India is still in its early stages, even though amazingly it is one of
the largest consumers of gold and its Archean greenstone belts and the other favourable geological horizons are comparable to
Africa and Australia. Currently India imports majority of its gold from countries like Australia, Switzerland, South Africa, UAE etc.
According to the Geological Survey of India (GSI), the Deccan region in the southern India has one of the richest deposits of gold.
Further, India has around 9% of the global gold reserves; however, it hardly produces around 0.4% of its total gold consumption.
Karnataka, Andhra Pradesh and Gujarat are the gold-producing centres in India and there exists tremendous potential for further
gold exploration. Realising this anomaly, the Indian government is taking the help of the GSI to explore the potential in gold and
diamond reserves in India.
Gems and Jewellery Cluster The Indian gems and jewellery sector employs around 1 million people directly and indirectly. The
sector is primarily concentrated in Maharashtra and Gujarat, and Mumbai and Surat are the most important diamond-cutting-andpolishing centres in both states, respectively. Mumbai is an important export-import centre for gems and jewellery and Surat is an
important centre for processing diamonds. Furthermore, Gujarat accounts for 80% of the total diamonds processed in India and
72% of the diamonds processed in the world almost 8 out of the 10 diamonds processed in the world are processed in Gujarat.
Popularly known as the silky city sparkling with diamonds, Surat is the largest diamond processing centre, with around 10,000
diamond units located in and around the city. Surat accounts for more than 50% of Gujarats total exports of processed diamonds
from India. Apart from Surat, Ahmedabad and Rajkot are the other major gems and jewellery clusters in Gujarat of which, Rajkot is
also famous for its exclusive handmade gold and silver jewellery.
The Indian government has set up gems and jewellery parks in special economic zones (SEZ) in Mumbai and Surat to promote the
diamond industry. Mumbai has an SEZ called SEEPZ SEZ, which has a gems and jewellery complex that houses more than 150
gems and jewellery units. Similarly, Surat also has a SEZ that houses a diamond park. However, the sector is gradually spreading
its wings to other parts in India such as cities in the south (Coimbatore, Bangalore, Hyderabad, Nellore, Thrissur), West Bengal
(Kolkata) and the north (Delhi and Jaipur).
Demand Drivers In the past few years, but before the global slowdown, the gems and jewellery sector has been on a growth
trajectory and its growth has been driven by several interplaying factors. Some of these demand drivers are discussed below:
Low Cost of Labour The low cost of labour for cutting and polishing of diamonds has made India an attractive destination for
diamond processing. Further, the diamond jewellery that is produced at a cost of US$ 60 to US$ 90 fetches around US$ 180 in the
international markets, which leaves a huge margin for the retailer.
Availability of Skilled Craftsmen Jewellery manufacturing is an ancient industry in India therefore it has a huge population of
skilled artisans/craftsmen. The true strengths of the jewellery industry are its beautiful handcrafted articles that are intricate and
comparable to world-class designs and the Indian craftsmen who have achieved excellence in this art. Furthermore, India is
famous for processing very small diamonds that requires immense skill, which the Indian artisans seem to have developed over the
years. These advantages help India score over its peers.

Rising Disposable Income The rising disposable income has been a major demand driver for the sector over the years, both
domestically as well as internationally. Jewellery, particularly diamond jewellery, is considered as a lifestyle product, and the
demand for lifestyle products has also gone up with the increase in disposable incomes; as a result, the gems and jewellery sector
has recorded tremendous growth in the past few years. Gold demand has been rising in India in the last few years because of
increased purchasing parity of the middle class and the increasing income levels. Gold demand grew by 7% to 769 tonnes in 2007
as compared with 722 tonnes in 2006.
Rise in Number of Working Women Over the last few years, there has been a spurt in the number of working women. This trend
has not only empowered women financially but also has changed their general attitude; as a result, there has been a growth in
purchase of gems and jewellery by this segment, mostly for jewellery that can be worn at work and for social occasions. The
increase in purchasing power of working women and their changing fashion needs has pushed up the growth in the gems and
jewellery sector.
Favourable Government Policies The abolition of the Gold Control Act in 1992, opening up the gold and diamond mining to
private foreign investors, concessional / low import duties have all been instrumental in increasing the demand for Indian gems and
jewellery sector.
Nurturing New Talent The government has set up various training institutes to attract quality personnel, to cater to the
international market and to focus on constant innovation of globally-acceptable designs. These institutes were set up to provide the
gems and jewellery sector with a well-trained professional workforce that is proficient in all aspects of jewellery design, refining,
model making, jewellery manufacturing, CAD / CAM, gemmology and diamond grading.
Adoption of Kimberly Process Certification System India is a member of the Kimberley Process Certification Scheme (KPCS)
that promotes conflict-free diamonds and thrives to prevent smuggling and non-standard trade in diamonds. Under the KPCS,
import or export of all rough diamonds in India is permitted only if the shipment is accompanied by the Kimberley Process
Certificate, which has not only increased the credibility of diamonds processed in India in the global market but also has boosted its
exports.
Increased Awareness and Changing Preferences There is a rise in awareness about diamonds in the Indian market. Various
initiatives are being undertaken by major diamond producers, retailers and industry bodies about portraying diamonds as exotic as
well as affordable. Increased promotion by retailers has made consumers aware of the diamond jewellery and have created
demand from various segments, which include people from all age groups. The trend of buying jewellery only during special
occasions such as weddings and festivals has gradually changed.
Development of SEZs The government has set up various SEZs to provide special incentives to the highly export-oriented sector.
The SEZs have units catering to designing, cutting and polishing of jewellery. The development of SEZs for gems and jewellery has
facilitated the growth and has enhanced the trade potential for the sector. The exports from SEZs grew by 43.18% from FY07 to
FY08.
Introduction The gems and jewellery sector is a major foreign exchange earner. Due to its importance in Indias foreign trade, the
government has taken many initiatives to boost the sector. The government, for instance, has declared this sector as a thrust area
for exports. During the global economic meltdown especially the government has dealt out many initiatives for the badly-affected
sector. This chapter focuses on the various policies and measures that were taken by the government for the gems and jewellery
sector.
Regulating Bodies
Gems & Jewellery Export Promotion Council (GJEPC): Established in 1966, the GJEPC is the apex body of the Indian gems
and jewellery industry, and has around 6,500 members across India. The primary goal of the Council is to introduce the Indian
gems and jewellery to the international market and to promote their exports. The Council provides market information to its
members regarding foreign trade inquiries, trade and tariff regulations, rates of import duties, and information about jewellery fairs
and exhibitions. The roles played by the GJPEC are broadly highlighted below:
Trade Facilitator The Council promotes the Indian gems and jewellery industry in the international market. It organises
international jewellery shows, hosts trade delegations, and undertakes image-building exercises through advertisements,
publications and audio-visual means.
Advisory Role The Council also aids better interaction and understanding between traders and government. The Council takes up
relevant issues with the government and agencies connected with exports. It also submits documents for consideration and
inclusion in the Exim Policy.

Nodal Agency for Kimberley Process Certification Scheme GJEPC works closely with the Indian government and the traders to
implement and oversee the Kimberley Process Certification Scheme; in fact, the Council has been appointed as the nodal agency
in India under the Kimberley Process Certification Scheme.
Training and Research The GJEPC runs many institutes that provide training in all aspects of manufacturing and design in
Mumbai, Delhi, Surat and Jaipur.
Varied Interests The Council publishes many brochures, statistical booklets, trade directories and a bi-monthly magazine Solitaire International, which is distributed internationally as well as to its members.
Gem & Jewellery Trade Council of India (GJTCI): The GJTCI was founded in 2000, and is tasked with resolving any issue
arising from trade in gems and jewellery. It plays an important role in showcasing the Indian gems and jewellery to the international
as well as the domestic market. Like the GJEPC, GJTCI also provides information to its members through a monthly newsletter,
various educative and trade-motivational events such as seminars, workshops, exhibitions, festivals etc.
The Bureau of Indian Standards: The Bureau of Indian Standards (BIS), the National Standards Body of India, is a statutory body
set up under the Bureau of Indian Standards Act, 1986 and is responsible for hallmarking gold jewellery in India.
Deregulation of Gold in India: In the pre-liberalisation period (prior to 1991), severe restrictions on the export and import of gold
from and into India were imposed. During that time only the State Bank of India (SBI) and the Metals Trading Corporation of India
(MMTC) were allowed to import gold.
The reasons for imposing these restrictions were:

To reduce demand for, as well as availability of gold

To alter the savings preferences of the population in favour of investments other than gold/silver

To stop smuggling of gold

To conserve foreign exchange resources

To prevent generation of or to unearth black money. It was thought that since gold was one of the most obvious choices
for keeping undeclared/ill-gotten income and wealth, a policy to restrict supply of gold would be effective in curbing black
money.

Several schemes that restricted the export and import of gold were launched in various forms between 1947 and 1963, but the
control regime finally took shape with the implementation of the Gold Control Act 1968. This Act did not allow goldsmiths to receive
more than 100 grams of standard gold for manufacturing jewellery. Further, a certified goldsmith was not allowed to possess a
stock of more than 300 grams of primary gold at any time. The quantity of primary gold possessed by a licensed dealer was limited
between 400 grams and 2 kg, depending on the number of artisans employed. There was a legal ban on gold transaction between
dealers.
The government abolished the Gold Control Act when the balance of payment crisis occurred in 1990, after which the large export
houses could import gold freely. Exporters in the export processing zones were allowed to sell 10% of their produce in the domestic
market. In 1993, gold and diamond mining were opened up for private investors and foreign investors were allowed to own half of
the equity in mining ventures. In 1997, overseas banks and bullion suppliers were also allowed to import gold into India. These
measures led to the entry of foreign players such as De Beers, Tiffany and Cartier into the Indian market.
Foreign Direct Investment Policy

At present, the Indian government allows 100% foreign direct investment (FDI) in gems and jewellery through the
automatic route.

For exploration and mining of diamonds and precious stones FDI is allowed up to 74% under the automatic route.

For exploration and mining of gold and silver and minerals other than diamonds and precious stones, metallurgy and
processing, FDI is allowed up to 100% under the automatic route.

Kimberley Process (KP)

The Kimberley Process came into force when the South African diamond producing nations met at Kimberley in South Africa in May
2000. The Kimberly Process was set up to discuss ways to stop the trade in conflict diamonds and to ensure that diamond
purchases did not fund violence. As of November 2008, the KP had 49 members, representing 75 countries. The Kimberley
Process Certification Scheme (KPCS) was implemented in India on January 1, 2003 to verify the legitimacy of the import / export of
rough diamonds as per the UN resolution and to curb the entry of conflict diamonds into the global trade flow. The system of
verification and issuance of KPC is administered from the Mumbai and Surat offices of GJEPC. In Indias Foreign Trade Policy
2009-14, the following measures related to the Kimberley Process Certification Scheme (KPCS) have been adopted:

No import or export of rough diamonds shall be permitted unless accompanied by the KP certificate as specified by the
GJEPC.

The export and import of rough diamonds to and from Venezuela has been prohibited by the Indian government owing to
the voluntary separation of Venezuela from the KPCS.

Government Initiatives to Boost the Sector

Measures taken by the government in the Union Budget 2009-10:
Customs Duty on Gold and Silver

Customs duty on serially numbered gold bars (other than tola bars) and gold coins to be increased from Rs 100 per 10
gram to Rs 200 per 10 gram. Customs duty on other forms of gold to be increased from Rs 250 per 10 gram to Rs 500 per
10 gram.

Customs duty on silver to be increased from Rs 500 per kg to Rs 1,000 per kg. These increases will also be applicable
when gold and silver (including ornaments) are imported as personal baggage

Central Excise Duty

Excise duty on branded articles of jewellery to be reduced from 2% to nil.

All categories within HS code 71 except the diamonds whether or not worked but not mounted or set (HS code 7102) and
certain sub-categories within HS code 7104 and 7106 currently have an excise duty rate of 16%.

The category diamonds whether or not worked but not mounted or set (HS code 7102) currently does not attract any
excise duty.

Sub-category Piezo-electric quartz (HS code 71041000), silver (including silver plated with gold or platinum) in powdered
form (HS code 71061000), unwrought (HS code 71069100) and other (HS code 71069290) do not attract any excise duty.

Fiscal Stimulus Measures (December 2008)

The Reserve Bank of India announced certain fiscal stimulus measures in December 2008 to revive the Indian economy during the
onset of the global financial crisis. The following measures were announced for the Indian gems and jewellery sector:

Increasing the post-shipment Rupee export credit period from 90 days to 180 days from November 28, 2008

Increasing the pre-shipment rupee export credit period from 180 days to 270 days from November 15, 2008

Providing an interest subvention of 2% up to March 31, 2009, subject to minimum rate of interest of 7% per annum, to
make pre and post-shipment export credit for gems and jewellery more attractive

Allowing exporters to avail refund of service tax on foreign agent commissions of up to 10% of FOB value of exports. They
will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme

Banks will charge interest rate not exceeding Benchmark Prime Lending Rate (BPLR) minus 4.5% on pre-shipment credit
up to 270 days and post-shipment credit up to 180 days on the outstanding amount for the period December 1, 2008 to
September 30, 2009.

Export Facilitation Measures by the Ministry of Commerce and Industry

Further, in February 2009, the gems and jewellery sector got a special boost from the Ministry of Commerce with the following
announcements: Gems and jewellery, diamonds and precious metals were given a special boost by the Ministry of Commerce and
Industry, the Export Promotion Council for Gems and Jewellery and Star Trading Houses (in the gems and jewellery sector).
Besides, the Diamond India Ltd, MSTC Ltd and STCL Ltd were added under the list of nominated agencies notified under Para 4
A.4 of foreign trade policy for the import of precious metals.

Surat, Gujarat has been given the recognition of a town of export excellence, because it is home to thousands of diamond
units that employ many diamond workers.

The authorised persons of gems and jewellery units in export-oriented units will be allowed to carry personal carriage of
gold in primary form up to 10 kg in a financial year subject to the RBI and customs guidelines.

Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporters.

Foreign Trade Policy 2009-2014

Foreign Trade Policy has identified the gems and jewellery sector as a thrust area with prospects for export expansion and
employment generation. The highlights of the policy are:
a.

Import of gold of 8 carat and above allowed under replenishment scheme subject to import being accompanied by an
Assay Certificate specifying purity, weight and alloy content.

b.

Duty Free Import Entitlement (based on FOB value of exports during the previous financial year) of consumables and
tools, for:
1.

Jewellery made out of:

i.

Precious metals (other than gold and platinum) 2%

ii.

Gold and platinum 1%

iii.

Rhodium finished silver 3%

2.

Cut and polished diamonds 1%

3.

Duty free import entitlement of consumables for metals other than gold, platinum will be 2% of FOB value of
exports during the previous financial year.

c.

Duty-free import entitlement of commercial samples shall be Rs 300,000.

d.

Duty free re-import entitlement for rejected jewellery shall be 2% of FOB value of exports.

e.

Import of diamonds on consignment basis for certification/ grading and re-export by the authorised offices/agencies of
Gemological Institute of America (GIA) in India or other approved agencies will be permitted.

f.

To promote export of gems and jewellery products, the value limits of personal carriage of gems and jewellery products in
case of holding/participating in overseas exhibitions increased to US$ 5 mn and to US$ 1 mn in case of export promotion
tours. Further, the limit in case of personal carriage, as samples, for export promotion tours, has been increased from US$
0.1 mn to US$ 1 mn.

g.

Extension in number of days for re-import of unsold items in case of participation in an exhibition in the US increased to
90 days.

h.

In an endeavour to make India a diamond international trading hub, diamond bourses will be planned.

i.

Gems and jewellery units may sell up to 10% of FOB value of exports of the preceding year in Domestic Tariff Area (DTA),
subject to fulfilment of positive Net Foreign Exchange (NFE). In respect of sale of plain jewellery, recipient shall pay
concessional rate of duty as applicable to sale from nominated agencies.

BALANCE OF PAYMENTS
BOP or Balance of International Payments is the systematic and summary record of a countrys economic and financial transactions
with the rest of the world over a period of time.

As per IMF: BOP is a statistical statement for a given period showing: (a) transactions in goods & services and income between
an economy and the rest of the world; (b) changes of ownership and other changes in that countrys monetary gold, SDRs, and
claims on and liabilities to the rest of the world; and (c) unrequited transfers and counterpart entries that are needed to
balance, in the accounting sense any entries for the foregoing transactions and changes which are not mutually offsetting. IMF,
Balance of Payments Manual.

Difference between BOP and BOT

Balance of Trade: only exports and imports of merchandise or goods , i.e. only visibles. Hence does not show the services
(shipping, insurance, payment of interest, royalties, tourist spendings, etc.)
BOP: both visibles and invisibles.
Nature of BOP accounting

Follows double entry book keeping system.

Each transaction has a debit and credit
Has to balance (if not : errors & omissions entry)

Components of BOP
Various entries grouped under 4 categories or accounts (parts)
A) Current Account
B) Capital Account
C) Unilateral Payments Account
D) Official Settlements Account.
Components of BOP

Balance of payment (BoP) comprises:

current account,

capital account,

errors and omissions and changes in foreign exchange reserves.

Current Account

Is a summary record of a nations goods and invisibles transactions with the rest of the world.

All transactions which give rise to or use up National Income.

Includes 2 major items: Merchandise exports & imports Invisible exports & imports

Exports = credit entry ( i.e. claims on foreigners)

Imports = debit entry (i.e. Claims on home country)

Capital Account
Shows the capital inflows and outflows.
=Claims and liabilities which go to finance the deficit on current a/c or absorb its surplus.
Short Term
Long Term
Capital Outflow = Debit ( eg. Indian inv in a foreign country, inv in foreign securities, govt.loans to foreign countries)
Capital Inflow = Credit ( FDI by a foreign co. in India, loans to Govt. from foreign countries, NRI deposits).
Also ST investments from abroad (incl FIIs).
The interest on loans and dividends/profits received are current account; while the loan and FDI are capital account transactions.
Unilateral Transfer Account

= Gifts.
No quid pro quo.

One-sided transactions

Include private remittances, govt grants, pension payments, disaster relief, etc.


If received = credit; if paid = debit

Now included in Other Receipts.

Official Settlement Account

=Monetary Movement

Official reserves represent the holdings by the Government (or official agencies) of the means of payment that are
generally accepted for the settlement of international claims.
Causes of BOP disequilibrium

Disequilibrium = there is surplus or deficit in BOP

Deficit = demand for forex exceeds the supply

Reasons:

Economic factors

Political factors

Sociological factors
Economic factors
1. Development Disequilibrium:
Large scale development expenditure = increase in purchasing power + increase in demand & prices.
--Leads to huge imports (also of Capital Goods)
--Hence adverse BOT adverse BOP.
2. Capital Disequilibrium

Due to cyclical fluctuations in general business activity.

If domestic economy experiences a boom, while the rest of the world not so
--then more purchasing power & demand and higher prices
--hence more imports

But exports difficult because of slackness in world economy.

Hence
3. Secular Disequilibrium

If long term BOP problem, then it is due to some secular trends in the economy.

If domestically: persistent high demand and high domestic prices (eg.USA) then imports will always be more than
exports.

( if high production costs locally: but high disposable incomes and hence very high aggregate demand and high prices.)
4.Structural Disequilibrium
Affects exports & imports

Because of development of alternative sources of supply,

discovery of better substitutes,

exhaustion of productive resources,

changes in transport routes and costs etc.

II. Political factors

Continuous political instability, wars, etc., will lead to capital outflows and inadequacy of domestic investment and
production

Hence BOP problems.

III. Social factors

Changes in tastes, preferences, fashions etc., will affect the exports and imports.

Hence BOP
Causes of BOP problem in India
1. Large trade deficit
2. Fall in invisible surplus, caused by
a) increase in invisibles payments (debt service)
b) slackening of emigrants remittances and travel income.
3. Sensitive behaviour of foreign creditors and NRIs
4. Declining role of concessional external finance.