News

Boom after gloom: GST helps organise diamond industry

Rutam Vora Ahmedabad | Updated on June 22, 2018 Published on June 22, 2018

GST having a positive effect on the diamond industry

SMEs cut dependence on third-parties; conduct overseas transactions on their own

For 40-year-old Paresh Kanani in Surat, life has changed dramatically over the past one year. A small-time diamond trader, who used third-party channel to export small quantities of diamond and jewellery to his clients abroad, now proudly harbours an ambition of becoming ₹100 crore company from ₹8 crore currently. Kanani and many like him in the diamond hub of Surat attribute their happiness to the new tax regime, Goods and Services Tax (GST), which, they say, has given wings to their dreams.

Sharing about his journey from an unorganised player in the ₹1 lakh-crore diamond industry, to a registered exporter with a GST number, the SSC-pass Kanani expressed joy and satisfaction for being able to do business with self-respect without being relied upon any third party.

Doing away with third party

These unorganised SMEs usually do not have tax registrations of their companies. Their business is mostly done through third-party exporters/importers. The tax liability normally rests on third-party player, who in-exchange, charges commission—in the range of 2-2.5 per cent—from the unorganised players.

“For past one year, I have been able to do direct business with my clients without requiring to rely on a third party for payment or delivery. This boosts the self-respect and confidence of doing business for a small exporter. I am confident that I will achieve ₹100 crore turnover within two years," Kanani, who registered a company named Trinity Jewells post GST rollout, told BusinessLine. Roll-out of GST necessitated him to get into the formal partnership business structure.

Traditional method

Traditionally, a large part of the diamond trade in Surat, which processes about 85 per cent of the world’s diamonds, happened through unorganised route.

Especially for overseas transactions, according to industry insiders, the small-time unregistered players would look upto prominent exporters to execute overseas orders. Subsequently, those large exporters would carry their goods for a commission and make payment transfers according to the agreed terms. The only incentive to the small traders to rely on the third-party export/import is the freedom from the documentation hassles.

“There was initial hesitation due to unfamiliar GST system. We attended many awareness seminars before the roll-out, but eventually, the actual ground situation was completely different. But now it is a more preferred mode even by SMEs,” said Kalpesh Vaghasiya of Elvee Jewels Pvt Ltd.

According to an industry estimate, about 300-350 such entrepreneurs like Kanani formed new companies and turned to official channel to do the business.

Credibility boost

“This is a big transformation that we are witnessing in the diamond industry, which has been dominated by unorganised players. Post GST, we have seen young entrepreneurs setting up new companies. This gives a credibility to the sector and also to the individual players, who would have financial advantage by coming under the formal system,” said Dinesh Navadiya, Gujarat regional chairman of Gems and Jewellery Export Promotion Council (GJEPC).

Underlining the multiple advantages of using an official system, Navadiya said, “They get lots of savings from commissions paid to the third-party. From that savings, they can appoint an accountant to take care of their accounts and more importantly, all transactions happening in their books creates a track-record and gives them financial credibility,” added Navadia.

Published on June 22, 2018
This article is closed for comments.
Please Email the Editor