GST rate cut in diamond job work to free up Rs 1,500 cr working capital

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The Goods and Services Tax (GST) rate cut from five percent to 1.5 percent in job work for diamonds is expected to provide the much-needed impetus to the industry. Blocked working capital worth Rs 1,500 crore in almost defunct job-work diamond polishing units is expected to be released even as diamantaires are likely to issue fresh orders to these units, following GST relief.

A similar benefit is set to accrue in case of cut and polished semi-precious stones where the GST rate has been pared to 0.25 percent from three percent. In the diamond industry, imported or sourced rough precious stones are sent for polishing by diamantaires to either their own units or outsourced to smaller units doing job work. It was this outsourcing that had attracted a five percent, against which the diamond industry had been making representation to the government for reduction.

“In terms of job work service, the government has reduced the rate of GST from five percent to 1.5 percent on the supply of job work services in relation to diamonds. The measures will provide impetus to the sector, help upscale manufacturing and augment exports of Gems & Jewellery from India. The Government has given a positive stimulus to the economy and the industry facing challenging times due to slump in global demand and also due to low domestic consumption,” said Pramod Kumar Agrawal, Chairman, Gem, and Jewellery Export Promotion Council (GJEPC).

According to Dinesh Navadia, regional chairman-Gujarat for GJEPC blocked working capital worth Rs 1,500 crore could get released with a reduced GST rate on job work since diamantaires would now be willing to opt for more outsourcing. So far, demonetisation, coupled with GST, has led to a liquidity crisis, with a five percent rate on job work forcing diamantaires to reduce outsourcing and go for their own polishing units, since the former attracted more tax.

“Earlier, diamantaires would outsource 60-70 percent of their polishing requirement to job work units. After demonetisation and GST, it has now come down to only 30 percent. As a result, of the roughly 5,000-7,000 units in the state that used to take up job work, only 30 percent were getting business. This is set to improve now with the GST rate reduction,” said Kirti Shah, a Surat-based diamantaire. Shah also added that diamantaires had also deferred investments on newer machinery leading to blocked working capital, which would now get released since anticipation of fresh orders will push investments.

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