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Our Bureau

Mumbai, Feb. 12 The diamond trade, currently reeling under the impact of global slowdown in demand, may get some concessions from the banking sector in a month’s time.

The Reserve Bank of India has decided to constitute a Task Force to look into the problems faced by the diamond industry in Gujarat and make practicable recommendations for mitigating the difficulties.

This decision was taken by the RBI’s Central Board, which met in Ahmedabad on Thursday. The Board also reviewed key economic, monetary and financial developments and the various measures taken since mid-December 2008 to preserve financial stability, arrest the moderation in growth momentum in the context of the ongoing global financial crisis and the deepening recession in major economies of the world.

The Task Force for the Diamond Sector will comprise representatives of the State Government, State Level Bankers’ Committee Convener (SLBC) for Gujarat (Dena Bank) and other bankers. The RBI will be the convener of the Task Force, which will submit its report not later than February 28.

Gujarat is the hub of diamond industry in the country. Thousands of small diamond cutting and polishing units are located in and around Surat.

According to Mr Vasant Mehta, Chairman, Gem & Jewellery Export Promotion Council (GJEPC), almost one lakh out of the estimated eight lakh people employed in the diamond industry had lost their jobs in the last one year on account of the global demand slowdown.

“Payment cycles have got elongated due to the global credit crunch. Payments are not materialising even four to five months after the export of a consignment. Given this bleak scenario, banks should be lenient when it comes to charging penal interest rates on post-shipment credit. Globally, credit is available at 4-5 per cent, while in India it is available at a steep 10-12 per cent. When the times were good, the industry did not mind paying high interest. But when times are bad, interest rate concessions should be extended so that units don’t fold up, triggering massive lay-offs,” said Mr. Mehta.

The GJEPC chairman pointed out that diamond trade is a significant contributor to India’s foreign exchange earnings. Last month, the trade accounted for 13.4 per cent of forex revenues.

Industry analyst Mr Chaim Even Zohar, in a presentation to the GJEPC, pointed out that the diamond industry is vulnerable to global credit crunch due to its high dependence on debt. Mr Zohar urged the trade to reduce inventory as banks will be cautious while lending.

“The Reserve Bank will endeavour to minimise the stress on various sectors of the economy on account of the international financial crisis and the global slowdown. The policy objective is to ensure adequate availability of liquidity in the system and to maintain conditions conducive for flow of credit for all productive purposes, particularly to housing, export and small and medium industry sectors,” said the RBI in a statement.

The Central Board asked the SLBC to review the status of financial inclusion in Gujarat and fix quantifiable targets for furthering the cause of financial inclusion in the State. The review will, in particular, explore how the quality and pace of financial inclusion can synergise with the proposal of the Government of Gujarat to cover all the villages in the state with broad band connectivity.

Further, the State Government will be meeting bankers and various borrower segments to encourage them to take the maximum advantage of the guidelines issued by the RBI in regard to the restructuring of bank dues of the borrowers.

More Stories on : RBI & Other Central Banks | Gems & Jewellery

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