The decision, which came into effect from 5 June, is however expected to have a limited impact on India’s overall export trade, said Crisil Research Ltd. Among the sectors that will be impacted, gems and jewellery will be the worst hit.
“The withdrawal of GSP will affect exporters of gems and jewellery the most because around 15% of such exports availed of its benefits in calendar 2018. Now there will be an additional duty of ~7% on exports of precious metal-based and imitation jewellery. That will reduce competitiveness of domestic exporters and put pressure on margins," the rating agency has said in a report.
This comes at a time when there are increasing worries over job creation in India. Lack of timely data is the biggest challenge while assessing the country’s employment scenario.
In a written reply to the Lok Sabha on 7 January, the then minister of state for commerce and industry, C.R. Chaudhary, had said that the gems and jewellery sector provided employment to around five million people in 2017-18.
Economists said increased competitive pressures from other countries, such as Mexico and Canada, along with a financial crunch internally, would certainly lead to some cost-cutting measures including a reduction in manpower.
It should be noted that exports of gems and jewellery continued to contract, as did the flow of credit to the industry.
Trade data for May showed that exports of labour-intensive sectors, including gems and jewellery, were dismal. The Reserve Bank of India’s monthly data showed that industrial credit to the sector had declined to ₹66,700 crore in April, down 3.9% year-on-year.
Given the large presence of unorganized companies, the implementation of the goods and services tax, as well as demonetization, had led to a spike in compliance costs.
What made access to funds more difficult was the financial scam at Punjab National Bank allegedly involving Mehul Choksi of the Gitanjali Group.
“Apart from the financial loss due to this scam, employment will come down by around 3,000 permanent staff for these two companies (Gitanjali Gems Ltd and Firestar Diamonds), which could impact another 7,000-8,000 non-permanent staff directly and indirectly," CARE Ratings had said in a report on 27 February 2018.
To conclude, geopolitical tensions would continue to impact demand in the sector. That, along with the ongoing working-capital crunch due to strict lending rules, would make it difficult for Indian gems and jewellery producers in the near future.