GLOBAL / COUNTRY STUDY AND REPORT SUBJECT CODE: BELGIUM SUBMITTED TO: GUJARAT TECHNOLOGICAL UNIVERSITY

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1 A GLOBAL / COUNTRY STUDY AND REPORT SUBJECT CODE: ON BELGIUM SUBMITTED TO: GUJARAT TECHNOLOGICAL UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ASMINISTRATION Batch: MBA SEMESTER IV SWAMI VIVEKANAND MBA COLLEGE MBA PROGRAM AFFILIATED TO GUJARAT TECHNOLOGICAL UNIVERSITY AHMEDABAD MONTH 04, YEAR 2012

2 Chapter No. Sub Ch No. TABLE OF CONTENT Topic Page No. 1 Introduction/Demographic Analysis About The Country Overview of Belgium Demographic Profile Geography of Belgium 11 2 Major Economic Sectors Analysis In Belgium 13 3 Introduction Of Gems And Jewellery Sector & 17 Diamond Market Of India And Its Role in Belgium 3.1 Introduction Of Gems And Jewellery Sector in India 3.2 Environment scanning and competitiveness of the gems and jewellery sector of India Introduction Of Gems And Jewellery Of Belgium Role of India in Belgium in Gems and Jewellery market 26 4 SWOT Analysis SWOT Analysis of Belgium as a Country SWOT Analysis of Diamond Industry in line with Belgium (Co-related with India)*some points 29 5 PESTEL ANALYSIS Political Factor Economic Factor Social Factor Technological Factor Ecological Factor Legal Factor 38 6 Nation Advantage Of Competitive Advantage (Porter Diamond Model) 40 2

3 Chapter No. Sub Ch No. Topic Page No. 7 Belgium Various Export and Import items 42 and its Partners 8 Belgium s Trade At International Level And With India And Gujarat Belgium-International Trade India-Belgium Relation Bilateral Trade Trade and Economic links between India and 47 Belgium 8.5 An Agreements Were Signed Between Belgian and India 8.6 Cultural Cooperation Indian community in Belgium India s Exports and Imports to EU 49 9 Value Chain Of The Sector Value Chain Diamonds Market structure of the Gems and Jewellery sector 9.3 Major Export Markets Competitive Markets Overview With India India is a leading player in the global Gems and Jewellery market 9.6 Competitive Advantage Demand Drivers Of The Gems And Jewellery Sector 10.1 Demand drivers of the Jewellery Segment Demand drivers of Diamond Jewellery Drivers of competitiveness of the Gems and Jewellery Sector

4 Ch No Sub Ch No. Topic 11 Legal Procedure of Export-Import from Belgium to India Page no Diamond Office Custom duty-v.a.t Expence Other Expense Licence Kimberley Certificate Stock Declaration Carnet A.T.A Import and Export Procedure Import Procedure Export Procedure Legal Procedure of Export-Import from India and other Government Initiatives Regulatory Bodies Foreign Direct Investment Policy Kimberley Certificate Government Initiatives to Boost the Sector Export Facilitation Measures by the Ministry of 92 Commerce and Industry 12.6 Foreign Trade policy Special Economic Zones (SEZ) Diamond, Gem & Jewellery Export Promotion Schemes Policy 12.9 Import- Export Procedure from India to Belgium 13 Opportunities in Belgium Small in Size, Great in Opportunity Feasible Opportunity In Belgium

5 Chapter No. Sub Ch No. Topic Page No. 14 Feasibiltiy Study Marketing Analysis Technological Analysis Financial Analysis Economic Analysis Ecological Analysis Barriers In Diamond Business Culture & Communication Risks Hurdles to Expand Business Economic, Social and Environmental Issues The Diamond mining industry faces environmental 122 challenges 15.6 Social Problem and control Recommendation Conclusion Bibliography 129 5

6 LIST OF TABLES Sr. No Topic Page No. 2.1 Growth rates of major sectors of Belgium Output of tertiary sector in Size of Retail Market India Share of various segments of the gems and jewellery sector (export) 3.3 Growth rates of various segment of Gems & Jewellery Sector in India 3.4 Segment wise Belgium's exports of Gems and Jewellery during the 25 period and and Porter Diamond Model Analysis Imported Commodities and partners Principal trading partners (in millions of US dollars) Belgium Balance of Trade India s Exports to EU India s Imports from EU Belgium-India total export and import in value for last 5 years: India s Country wise Export India s Country wise Import India Gems & Jewellery Industry-Highlights Operational Gem & Jewellery SEZs in India SEZs Approved under the SEZ Act, List of Valid in principle Apporvals Demography of Belgium Households of Belgium Life Expectancy in Belgium Pattern of spending in Belgium

7 LIST OF FIGURES Sr. No Topic Page No. 6.1 Porter Diamond Model Trade Balance Fluctuations of Belgium since Monthly Import-Export and Trade Balance Value Chain of Diamonds and Gold Gems & Jewellery Clusters in Gujarat Destination wise exports of gems and jewellery Share of India s Gem & Jewellery Sector Comparative position of India in Global Gems & Jewellery Sector Demand drivers for the gems and jewellery sector Demand drivers for diamond jewellery Patten of Spending in Belgium Monthly import and export of textile, clothes and footwear 106 7

8 CHAPTER 1. INTRODUCTION/DEMOGRAPHIC ANALYSIS ABOUT THE COUNTRY 1.1 Overview of Belgium Belgium officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organizations such as NATO. It has a population of about 11 million people. Belgium is straddling the cultural boundary between Germanic and Latin Europe. Belgium is home to two main linguistic groups, the Dutch-speakers, mostly Flemish (about 60%), and the French-speakers, mostly Walloons (about 40%), plus a small group of Germanspeakers. Belgium's two largest regions are the Dutch-speaking region of Flanders in the north and the French-speaking southern region of Wallonia. There are more Dutch speaking people in Belgium than French speaking. 8

9 Flag of Belgium The Brussels-Capital Region, officially bilingual, is a mostly French-speaking enclave within the Flemish Region. A German-speaking Community exists in eastern Wallonia. Belgium s linguistic diversity and related political conflicts are reflected in the political history and a complex system of government. Belgium is having the Government Federal Parliamentary Democracy and constitutional monarchy. The Prime minister of Belgium is Yves Leterme. 1.2 Demographic Profile Total Population: 10,414,336 (July 2009 est.), ranked #78 behind the Portugal (10,707,924) and Tunisia (10,486,339). Total Land and Water Area:30,528 sq km, ranked #140 behind the Taiwan (35,980 sq km) and Moldova (33,851 sq km). Age Profile Percentage of people 0-14 years 16.1% years 66.3% 65 years and over 17.6% Median age 41.7 Average life expectancy years Ranked (in Avg. life expectancy) 33 rd in world 9

10 Male 48% Female 52% Ethnic groups Fleming 58%, Walloon 31%, Mixed or other 11% Religions Roman Catholic 75%, Other(includes Protestant)25% School life expectancy (primary to tertiary education) Per Capita Gross National Income (at current prices in US Dollars) 16 years $36,600, ranked #29 in world Gross Domestic Product Contribution by Economic Sector and Top Industries: 74.7% Services 24.5% Industry 0.8% Agriculture Industries: engineering and metal products, motor vehicle assembly, transportation equipment, scientific instruments, processed food and beverages, chemicals, basic metals, textiles, glass, petroleum (Source: Belgium\Belgium/demographic - Wikipedia, the free encyclopedia.mht) 10

11 1.3 Geography of Belgium Continent Region Europe Western Europe Coordinates N 4 00 E N 4 E Area Ranked139th 33,990 km 2 (13,120 sq mi) 89%land 11 % water Borders Total and borders: 1,482 km(859 miles) France 645 km, Germany 153 km, Luxembourg 150 km and Netherlands 460 km Highest point Signal de Botrange 694 m (2,277 ft) Lowest point De Moeren 11

12 Belgium is a federal state located in Western Europe, bordering the North Sea. Belgium shares borders with France (620 km), Germany (167 km), Luxembourg (148 km) and the Netherlands (450 km). Belgium comprises the regions of Flanders, Wallonia and Brussels. Natural hazards: flooding is a threat in areas of reclaimed coastal land, protected from the sea by concrete dikes. Geography - note: crossroads of Western Europe; majority of West European capitals within 1,000 km of Brussels which is the seat of both the EU and NATO. Longest Distances: 280 km SE-NW/ 222 km NE-SW Natural resources Natural resources in Belgium include construction materials, silica sand and carbonates. Belgium used to have coal mines. As of 2007, the land use was as follows: Arable land 27.42% Permanent crops: 0.69% Other: 71.89% Environment Because of its high population density and location in the centre of Western Europe, Belgium faces serious environmental problems. A 2003 report suggested that the water in Belgium's rivers was of the lowest quality in Europe, and bottom of the 122 countries studied. Cities The main cities in Belgium in terms of population are Brussels, Antwerp, Ghent, Charleroi and Liège. Other notable cities include Bruges, Namur, Leuven, Mons and Mechelen. (Source: Belgium\Belgium/geography - Wikipedia, the free encyclopedia.mht) 12

13 CHAPTER 2 MAJOR ECONOMIC SECTORS ANALYSIS IN BELGIUM From Belgium s different economic sectors we have taken 7 different sectors according to their emergence and growth at very fast pace: 1. Telecommunication Sector 2. Oil and Natural Gas Sector 3. Food Processing Sector 4. Chemical Sector 5. Personal care (cosmetic segment) 6. Health care segment 7. Gems & Jewellery Sector (Diamond segment) Table: 2.1 Growth rates of major sectors of Belgium No Economic sectors Growth rate in % (Year 2010) 1 Telecommunication 2.2 % 2 Oil & natural gas 2.3 % 3 Food processing 4.6 % 4 Chemical sector 9.2 % 5 Cosmetic sector 8.0 % 6 Health sector 9.6 % 7 Diamond sector 11.6 % Conclusion:- From the above table we are conclude that in the year 2010 diamond industry are higher than other economic sectors in Belgium, so that we can make investment in the diamond industry, they are profitable for our business. 13

14 Service sector The tertiary sector of the economy (also known as the service sector or the service industry) is one of the three economic sectors, the others being the secondary sector (approximately the same as manufacturing) and the primary sector (agriculture, fishing, and extraction such as mining). The service sector consists of the "soft" parts of the economy, i.e. activities where people offer their knowledge and time to improve productivity, performance, potential, and sustainability. The basic characteristic of this sector is the production of services instead of end products. The tertiary sector of industry involves the provision of services to other businesses as well as final consumers. Services may involve the transport, distribution and sale of goods from producer to a consumer, as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. The goods may be transformed in the process of providing the service, as happens in the restaurant industry. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods. A service is the non-material equivalent of a good. Service provision is defined as an economic activity that does not result in ownership, and this is what differentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating a change in customers, a change in their physical possessions, or a change in their intangible assets. Service output is a component of the GDP of a nation. The service sector includes (but is not limited to) farm and factory related activities. Examples of service sector employment in Belgium includes: Government Healthcare/hospitals Education Banking/Insurance Tourism 14

15 Retail sales List of countries by service output Table: 2.2 Output of tertiary sector in 2011 RANK COUNTRY OUTPUT IN BILLIONS IN US$ COMPOSITION OF GDP (%) - World % 100% - European 13, % 29.9% Union 1 United States 11, % 26.3% Remaining 5, % Countries 2 Japan 4, % 9.9% 3 China 3, % 6.9% 4 Germany 2, % 5.9% 5 France 2, % 5.1% 6 United 1, % 4.4% Kingdom 7 Brazil 1, % 3.9% 8 Italy 1, % 3.7% 9 Canada 1, % 2.8% 10 Russia 1, % 2.5% 11 Spain 1, % 2.5% 12 Australia 1, % 2.4% 13 India 1, % 2.3% 14 Mexico % 1.7% 15 South Korea % 1.5% 16 Netherlands % 1.4% 17 Turkey % 1.1% 18 Switzerland % 1.1% 19 Belgium % 0.9% 20 Sweden % 0.9% % OF GLOBAL TERTIARY SECTOR Thus we can conclude that the Growth rate of Service industry in Belgium was 77.4% of G.D.P.in 2011 and from the above table we can conclude that in the year 2011 the European union s G.D.P. composition of 73.1% and the global is 29.9%. The united kingdom s tertiary sector s composition of G.D.P. is 77.7% and the global G.D.P. are 4.4%, The Belgium s 15

16 composition of service sector in G.D.P. is 77.3%, and global is 0.9%, As compared to United Kingdom the Belgium tertiary sector growth rate are less. Because of weak export demand, labor productivity growth decline, lower contributions for investments in Belgium The diamond segment(gems & Jewelry) growth is $23 billion and the diamond segment(gems & Jewelry) growth rate is 11.6% in the year 2011.Diamond segment(gems & Jewelry) are higher than other economic sectors in Belgium, so that we can make investment in the diamond segment they are profitable for our business. 16

17 CHAPTER 3 INTRODUCTION OF GEMS AND JEWELLERY SECTOR AND DIMOND MARKET OF INDIA AND ITS ROLE IN BELGIUM As part of our study of Global Country Report, we have taken Belgium to do trade in it, and here we have analyzed the Gems and Jewellery and Diamond sector of India and Role of India in Belgium. 'Gems and Jewellery' sector includes following: Diamonds Precious / Semiprecious stones or colored gemstones Gold jewellery Pearls Non-gold jewellery Synthetic stones Costume / fashion jewellery. 3.1 INTRODUCTION OF GEMS AND JEWELLERY SECTOR IN INDIA Indian gems and jewellery products are acknowledged the world over for their exquisite craftsmanship. Modern state-of the-art machinery and computerized operations have lent a cutting edge to both the diamond processing and jewellery manufacture. Over one million people are directly or indirectly employed in this industry. 17

18 The industry is highly export-import oriented, labour intensive and employment oriented. Realizing enormous potential of the sector, the Ministry of Commerce, Government of India declared gem and jewellery as a thrust sector for export promotion. India is the world's largest manufacturing centre for gems and jewellery and the Industry contributes over 12% to the total export earnings of the country and employs highly skilled 1.5 million workers. This industry was hit hard by the full demand due to global economic slowdown in FY 09. The gems and jewellery industry is a major exchange exchequer as major portion (around 80%) of its turnover was contributed by exports. This classified into five main segments: Cut and polished diamonds, gemstones, gold and jewellery, pearl and synthetic stones, and others, including precious metal jewellery (other than gold), synthetic stones and costume fashion jewellery. i) Gold India has been the largest consumer of gold jewellery in recent times. The main reason for demand for gold has been the traditions and cultures in India. India exported gold mainly in the form of jewellery, valued US $ 4.32 billion (majority of them are studded with diamonds), which witnessed an increase of 2.2% over the previous year. This signifies the importance of domestic demand for jewellery and the reliance of imported gold for jewellery manufacturing.(which indirectly affect the diamond market of India with Belgium) 18

19 ii) Diamond India has always excelled in the field of diamond cutting, gem cutting, polishing and processing. India s diamond tradition goes back thousands of years and is one of the oldest in the world. India imports rough diamonds and process them for value addition and exports. iii) Precious Stones India was more an exporter of precious stones than an importer of the same, and the difference between these two being minimal. During , the exports of precious stones were US $ million, an increase of 6.5% over the previous year, and in the year , exports of precious stones witnessed a marginal decline of (-)0.1%, over the previous year. Import of precious stones has grown marginally; during the year , imports grew by 4.6% over the previous year. iv) Platinum Platinum is a naturally occurring rare metal which is scantier than gold. UAE was the major export destination for India s export of raw platinum, constituting 49.1% of total exports. Thailand and Belgium with 69% and 13% share. v) Silver During , exports of silver (unwrought and semi-manufactured form) witnessed a negative growth of 35.5%, and silver jewellery witnessed a growth of 19.5%. According to Gems and Jewellery Export Promotion council (GJEPC) export of cut and polished diamonds have declined by 8% in value terms to $ million in FY 09 as against $ million in the corresponding previous year. In the volume terms, the Quantity of cut and polished diamonds have fell by 7% to lakh carats in fiscal ended March

20 3.2 ENVIRONMENT SCANNING AND COMPETITIVENESS OF THE GEMS AND JEWELLERY SECTOR OF INDIA India in the Global Context The size of the global Gems and Jewellery industry was estimated at US $ 146 billion at retail prices in 2005, and is estimated to have recorded US $ 170 billion in sales in The industry has grown at an average Compounded Annual Growth Rate (CAGR) of 5.2% since India is one of the eight key world markets, the others being the USA, UK, Middle East, Turkey, Japan, Italy and China. India is the also the largest consumer of gold in the world, and is estimated to hold nearly 16,000 tons of gold, accounting for nearly 12-15% of the world's cumulative 'above ground' gold stocks. India is also the largest diamond cutting and polishing centre in the world. While a predominant portion of gold jewellery manufactured in India is for domestic consumption, a significant portion of rough, uncut diamonds processed in the form of either polished diamonds or finished diamond jewellery is exported. The manufacturing and processing of Gems and Jewellery is distributed across several countries in the world (i.e., the African continent dominates the mining space of diamonds whereas India is the dominant player in diamond processing). Apart from being a major market, India primarily forms a part of the polishing and jewellery manufacturing part of the industry's value chain in addition to increasing traction in the organized retail of jewellery. Industry size and Growth of the Gems and Jewellery Sector The domestic demand for gold jewellery was estimated at Rs. 550 billion in 2007, accounting for an estimated 80% of the Indian jewellery market of Rs. 690 billion; the balance comprised of diamond jewellery (Rs. 115 billion), and other fabricated jewellery (Rs. 25 billion), as seen below: 20

21 Table: 3.1 Size of Retail Market India Table 3.2 share of various segments of the gems and jewellery sector (export) 21

22 Also, the growth rates of the segments are as below: Table: 3.3 Growth rates of various segment of Gems & Jewellery Sector in India OUTLOOK: The gems and jewellery Industry has been one of the fastest growing industries in India in the past few years. This industry has been vital for the economy, as it has contributed, on an average, to about 15.27% of the country s total exports in past one decade. India is one of the largest diamond processors in the world. This industry is engaged in sourcing, manufacturing and processing which involves cutting, polishing and selling of precious gemstones as well as diamond and precious metals like gold, silver and platinum. The price of one of the main inputs in jewellery gold has been consistently touching all-time highs. The yellow metal s spot price in the domestic market hit all time high of `28,540 per 10 gram on August 22, In the international market, prices breached $1,900 (per ounce) level. Investment demand for gold remains strong in the current environment of market uncertainty, triggered by worries of a double dip recession in the US and worries of sovereign debt contagion in Europe. Gold has slowly turned into 22

23 a sophisticated invest-ment instrument, an improvement over its traditional use for jewellery making in India. Hence, the retailers have been trying to woo customers through cheaper alternatives, mainly silver jewellery. Because of this, Indian non-gold jewellery, a chunk of which is made in silver, is finding its way to export markets. This trend might strengthen in near future. The industry is highly fragmented and mostly unorganised. However, due to the ongoing retail revolution in the country, this industry is undergoing a transformation and gradually moving towards being organised. As part of this phenomenon, a number of nation-wide jew-ellery chains are increasingly making their presence felt. In recent times, the Government has taken various initiatives to support this sector. For instance, up to 100% FDI is allowed in the indus-try through automatic route. Also, special economic zones (SEZs) and jewellery parks have been set up to promote investments. After witnessing a significant downturn during , this industry is back on the a recovery path. However, due to export-import de-pendence, it remains susceptible to external developments, such as fluctuation in international prices, exchange rate volatility and de-mand scenario in key markets. It can be mentioned here that India has been one of the largest importers of gemstones, rough diamonds and precious metals over the years and most of it is used for exports after value addition. 23

24 3.3 INTRODUCTION OF GEMS AND JEWELLERY OF BELGIUM Global Exports in Gem and Jewellery Sector: Global exports of gem and jewellery related products in 2004 registered a steep growth of per cent over the previous year when the same touched a figure of US$78,022 million as against US$60,721 million. India as may be seen turned out to be third largest exporting country after Belgium and Israel. Belgium continues to be the largest exporting country. The country during the period registered a growth of per cent. The other countries registering a robust growth during the period include Switzerland (60.97%), China (37.31%), Canada (34.15%), USA (33.81%), India 25.21%), Hong Kong (21.78%), Israel (21.42%), and Congo (21.15%). Belgium has evinced interest in further boosting economic ties with India in sectors like IT, gems and jewellery, non-conventional energy sources and education. Belgian Ambassador Jean M. Deboutte in a press meet Friday said that they can strengthen their economic ties with India by increasing their cooperation in the IT, non-conventional energy sources and education along with gems and jewellery. Gems and Jewellery Export Promotion Council (GJEPC) has strongly urged the Union government to introduce presumptive tax system on the lines of Belgium and Israel, which will make India the world's leading gems and jewellery hub and to protect its vanguard position as the low-cost labour intensive global centre for diamond cutting and polishing activities. In its pre-budget recommendations, GJEPC has stated that India's traditional pre-eminent position is under threat with the shifting of industries and capital from India to other countries such as China and Thailand having the ability to offer plentiful and cost effective labour. 24

25 Table: 3.4 Segment wise Belgium's exports of Gems and Jewellery during the period and and (Rs.in crores) Segment %Growth on over Cut and polished diamond Gold Jewellery Rough diamond Coloured Gems Stone Non-Gold Jewellery Pearls Synthetic Stones Total

26 3.4 Role of India in Belgium in Gems and Jewellery market Forty percent of gems and jewellery in Belgium are imported from India and almost seventy to eighty percent Indians staying in Belgium are associated with the gems and jewellery trade. There exists growing trade and investment between the two countries in the face of the global financial slowdown," an official release quoting Sharma said.indo-belgium trade in was USD billion. The balance of trade continues to be in favour of Belgium At present, the trade is dominated by the gems and jewellery sector which accounts for about 61 per cent of the total bilateral commerce. The top sectors of imports from Belgium are pearls, precious and semi-precious stone, machinery, iron and steel. Diamonds accounts for a large part of this trade, much of it happens with the city of Antwerp. India is the 5th largest exporter to Belgium (after USA, China, Japan and Russia) and 2 nd largest importer of Belgian products in 2010 (after USA). The growth in exports of gems and jewellery sector has been primarily driven by the Cut & Polished Diamonds (CPD) segment over the years. CPD exports grew from US$ 7.11 bn in FY03 to US$ bn in FY09. Over the years, the major export markets for the Indian gems and jewellery sector has been USA, UAE, Hong Kong, Belgium, Israel, Japan Thailand, with US being the biggest export destination for Indian gems and jewellery. On the import front, Europe has been the largest importing destination for india followed by Middle East, Oceania and Asia. The major items of Indian exports to Belgium are - Precious stones; Textiles and garments; Iron and steel; Chemical products; Mineral products; Organic chemicals; Machinery and Electrical Equipments etc. 26

27 The major items of Indian imports from Belgium are- Precious stones; Iron and steel; Machinery and mechanical appliances; Chemical products; boilers, machinery and mechanical appliances & parts thereof: Organic chemicals; Plastic and rubber; Plastics and articles thereof; Pharmaceutical products etc. Around 2,500 Indian NRIs/PIOs, based in Antwerp mainly from Gujarat are involved in diamond trade. 27

28 CHAPTER 4. SWOT ANALYSIS 4.1 SWOT Analysis of Belgium as a Country Strengths 1. Integrated Economy:- 2. Favorability of Government:- 3. Developed Infrastructure:- 4. Business Freedom:- 5. Trade Freedom:- 6. Investment Freedom:- 7. Financial Freedom:- 8. Property Rights:- 9. Freedom from corruption 10. Labour Freedom 11. Rank in Health and Primary Education 12. Better Economy:- Weaknesses 1. Structural Weakness 2. Tax system 3. Budget deficit 4. Low availability of Natural Resources 5. Dominant power of Service sector 6. Environmental Issues OPPORTUNITIES 1. Trade from UK 2. Scope in domestic market 3. Job opportunities 4. Scope to develop as being a member of EU 5. Climate of open trade Threats 1. Unstable economy 2. Fiscal threat 3. Anti social activity and threat from terrorism 4. High tariffs 5. New competitive pressure 6. Claims made by stakeholders are illegitimate 28

29 4.2 Swot Analysis of Diamond Industry in line with Belgium (Co-related with India)*some points Strengths 1. Tradition with having scope to Develop:- 2. High Innovation in Diamond Processing in Gujarat with Brand Advantage:- 3. Historical significance and Home of the Diamond Industry:- 4. Strong connection between Indian diamond polishing industry & Belgium Diamond industry structure:- 5. Developed Diamond Processing Industry in Gujarat, getting trading advantage in Belgium:- 6. Largest Processing capacity advantageous over higher trading network:- 7. Developed connecting Network getting benefit to develop in EU Countries:- 8. Advantage of largest manufacturing sector with trading Advantage:- 9. Getting Advantage of Great entrepreneurial spirit of Indian with Great Specialized person in Belgium:- 10. Lower costs with Competitive Advantage:- Weaknesses 1. Licenses:- 2. Lack of Raw Material Availability:- 29

30 Opportunities 1. Colored diamonds:- 2. Developing Market of India with having chance to make Growth:- 3. Growth in international market:- 4. Growing Center having opportunity to get advantage of leading exporter:- 5. New markets in Europe & Latin America through establishing Network in Belgium:- 6. Growing demand in south Asian & far east countries:- 7. Fancy cut diamonds using specialized skill of labour:- 8. Roll-over skills and Government support to develop it:- 9. Network to grow in International Market:- 10. Employment opportunities with Government support:- Threats 1.Global competitive threats:- 2. Conflict diamonds:- 3.Effect of global recessionary trend:- 4. Global economic downturn:- 5. Protected cartel 6. Over dependence on singlechannel supply chain:- 30

31 CHAPTER 5 PESTEL ANALYSIS Belgium is a federal state, consisting of its three language communities that are responsible for the control of culture and education, and its three regions that are responsible for controlling the economic development, infrastructure, and environment. In Flanders, the institutions of the Dutch-speaking community and the Flemish region have merged, leaving the country with six governments and six parliaments. This complex structure has resulted from the increasing federalization of the country, which in turn has resulted from the demands. From the creation of the Belgian state in 1830 and throughout most of the 19th century, two political parties dominated Belgian politics: the Catholic Party and the Liberal Party. In the late 19th century the Socialist Party arose, representing the emerging industrial working class. These three groups still dominate Belgian governments, but they have evolved substantially in character and face new electoral challengers. 5.1 Political parties The Christian Democratic Parties After World War II, the Catholic (subsequently Christian Democratic) Party severed its formal ties with the Church. It became a mass party of the center (more like a political party in the United States). In 1968, the Christian Democratic Party responded to linguistic tensions in the country by dividing into two independent parties, now known as the Democratic and Humanist Center (CDH) in Francophone Wallonia and the Flemish Christian Democrats (CD&V) in Flanders. The two parties share similar policies, but not on institutional issues. The CD&V is the country's largest party, while the CDH is among the smaller parties. 31

32 The Socialist Parties. The modern Belgian Socialist parties are labor- and city-based parties. Despite the post-world War II dominance of the Christian Democrats, the Socialists headed several postwar governments. The Socialists also split along linguistic lines in The francophone Socialists dominate the cities and towns of Wallonia's industrial basin. The Flemish Socialists' support is less concentrated. The Liberal Parties. In modern times, the Liberal Parties in Belgium have chiefly appealed to business people, property owners, shopkeepers, and the self-employed. In American terms, the Liberals' positions could be considered to reflect a more conservative free market oriented economic ideology. This non-interventionist ideology is reflected also in the parties' strong support for gay marriage, homosexual adoption, and euthanasia. The two current Liberal parties were formed in 1971, after the original all-belgium Liberal Party split along linguistic lines. They are the Flemish Liberals and Democrats (Open VLD) in Flanders and the Reform Movement (MR) in Wallonia. Greens. The Flemish (Groen!) and Francophone (ECOLO) ecologist parties made their parliamentary breakthrough in Following significant gains in the 1999 general elections, the two Green parties joined a federal coalition cabinet for the first time in their history in Prime Minister Verhofstadt's first six-party coalition government. The parties experienced significant losses in the May 2003 election, however, with ECOLO winning only four seats in the Chamber and AGALEV failing to win any seats. They were thus excluded from the new coalition formed by returning Liberal Prime Minister Verhofstadt in Following the election, AGALEV changed its name to "Groen!." The two parties made a slight recovery in the 2007 general elections and even better in the 2010 general elections. 32

33 The Linguistic Parties. A postwar phenomenon in Belgium was the emergence of linguistic-based parties, which were formed to defend the cultural, political, and economic interests of one of the linguistic groups or regions of belgion society. The far-right Vlaams Belang (Flemish Interest) is the most militant Flemish regional party, with a separatist, anti-immigration, law and order platform. The Vlaams Belang was formerly called the Vlaams Blok, until a 2004 high court ruling confirmed a lower court verdict that the Blok was a "racist" party. Faced with further legal problems, the Blok disbanded and resurrected itself as the Vlaams Belang, with the same party leaders and basically the same radical party policy. The Vlaams Belang was the second most popular party in the 2007 general elections, with 19% of the Flemish vote. The party s support fell to 7.76% in 2010, as voters in Flanders turned to the more moderate and pragmatic new Flemish allince. In Brussels and Wallonia, the small far-right Front National (FN) managed to hold on to its only House seat in the 2007 general elections but lost it in the 2010 general elections. 5.2 Economical factors Central bank:- National Bank of Belgium. Belgium is part of the Euro system and the European Central Bank International Reserves:- US$ billion (Source: IMF; Data updated: November 2010) GDP : US$ billion (2010 estimate). GDP (Purchasing Power Parity): billion of International dollars (2010 estimate) 33

34 Real GDP growth: GDP (PPP) - share of world total % % % % % % % % % 2015** 0.47% % 2011* 1.7% GDP per capita - current price:- US$ 45,367 (2009 estimate) GDP per capita PPP:- $36,834 International Dollars (2009 estimate) GDP - composition by sector:- Agriculture: 0.6% Industry: 22% Services: 77.4% (2009 estimate) Gross domestic expenditure on R&D (% of GDP):- 1.92% (2008) Inflation rate:- Unemployment rate: % % % % % % 2011* 2.9% 2011* 8.4% 34

35 5.3 Socio-Cultural Factors Geographically and culturally, Belgium is at a crossroads of Europe, and during the past 2,000 years has witnessed a constant ebb and flow of different races and cultures. Consequently, Belgium is one of Europe's true melting pots with Celtic, Roman, Germanic, French, Dutch, Spanish, and Austrian cultures having made an imprint. Belgium is divided ethnically into the Dutch-speaking Flemings and French-speaking Walloons, the 75,000 residents of the eastern German cantons, and the bilingual capital of Brussels. The population density is the second highest in Europe, after the Netherlands. The majority of business people speak English and are highly-educated, desiring to be both straightforward and well-informed. However, efforts to speak a native language (Dutch or French) are always welcomed. Belgian culture is more formal than Canadian culture, with Belgians being formal and courteous in their business transactions. Titles are often used, while addressing business contacts by first name is not very common unless they are well-known. Similarly, business attire is formal and handshakes are a common way of greeting. However, establishing a personal relationship is not a necessary prerequisite for starting business dealings/relationships. Punctuality and deadlines are expected to be respected. Evolving consumer demands combined with increasingly powerful retailers are resulting in more interest in developing long-term partnerships. Due to a competitive marketplace and sophisticated consumer market, importers are interested in value-added products that have unique, innovative and healthy attributes. 35

36 5.4 Technological factors Product category Product Manufacturing: Octopus: pre polishing and polishing equipment Pendragon : polishing mill Balancer: EOS: Solid: to become a perfect equilibrated scaife new type of girdling machine three dimensional laser Examination: D-Scope: diamond microscope G-Scope: D-Screen: Merlin: Avalon: Avalight: gemmological microscope compact screening device rough scanner and marker smoothness tester smoothness tester on the D-Scope Source: 36

37 5.5 Ecological factors Today most modern diamond mines are managed to the ISO standards of environmental management, and the major companies have a policy of regularly publishing reports on their environmental performance. Many of the major diamond mining companies go beyond the ISO standard and use Environmental Impact Assessments and Social Impact Assessments to identify the environmental and social impacts of mines as well as to identify gaps at their operations. The environmental impact of the land exploration involved in diamond mining is minimized in several ways: Vehicle tracks are reused Minimal amounts of soil are cleared during drilling and sampling Topsoil from exploration sites is refilled and replace Energy efficiency and renewable energy programmes are widely used across the diamond mining industry. Emission levels are monitored through energy and carbon emission assessments. Mines have reduced their energy use by introducing a range of schemes: installing timers on boilers, shutting off pressurised fans over weekends, running mud pumps in off-peak periods and introducing battery-powered vehicles that do not emit harmful gases. Furthermore, solar panels and energy-saving schemes have reduced the amount of electricity used at mines. 37

38 5.6 Legal and government factors National Government Belgium is a hereditary constitutional monarchy. The current monarch is King Albert II, who took the oath of office on August 9, As titular head of state, the King plays a largely ceremonial and symbolic role in the nation. His primary political function is to designate a political leader to attempt to form a new cabinet following either an election, the resignation of a government, or a parliamentary vote of no confidence. The King is seen as playing a symbolic unifying role, representing a common national Belgian identity. The Belgian Parliament consists of a Senate and a House of Representatives. The House of Representatives has 150 directly elected members. The Senate has 71 members. The executive branch of the government consists of ministers and secretaries of state (junior ministers) drawn from the political parties that form the government coalition. The number of ministers is limited to 15, and they have no seat in Parliament. The Council of Ministers is chaired by the Prime Minister and consists of the ministerial heads of the executive departments. The allocation of powers between the Parliament and the Council of Ministers is somewhat similar to the United States--the Parliament enacts legislation and appropriates funds--but the Belgian Parliament does not have the same degree of independent power that the U.S. Congress has. Members of political parties represented in the government are expected to support all bills presented by the Cabinet. The House of Representatives is the "political" body that votes on motions of confidence and budgets. The Senate deals with long-term issues and votes on an equal footing with the Chamber on a limited range of matters, including constitutional reform bills and international treaties. 38

39 5.7 Government Type: Parliamentary democracy under a constitutional monarch. Independence: Constitution: 1994 (revised). Branches: Executive--King (head of state), Prime Minister (head of government), Council of Ministers (cabinet). Legislative--bicameral parliament (Senate and House of Representatives). Major political parties: Christian Democratic, Liberal, Socialist, Green, Flemish Nationalists, Vlaams Belang (Flemish extreme right). Political subdivisions: Ten provinces, three regions, three communities, 589 municipalities. 39

40 CHAPTER 6 NATION ADVANTAGE OF COMPETITIVE ADVANTAGE (PORTER DIAMOND MODEL) Figure: 6.1 Porter Diamond Model 40

41 Table: 6.1 Porter Diamond Model Analysis Sr. Component Favorable/ Description No Unfavorable 1 Factor Conditions Favorable Labors, Resource and Material availability 2 Demand Conditions Favorable Rising demand for polished, rough diamonds from developed as well as developing countries. 3 Related and Supporting Favorable Gem quality diamonds are usually Industries distributed to one of the main diamond cutting and trading centers in Antwerp, Mumbai, Tel Aviv, New York, China, Thailand or Johannesburg. 4 Firm Strategy, Structure, and Favorable Associations are formed of Rivalry diamond traders 5 Government's Role Favorable Government s main focus is on diamond segment as Antwerp is the only trading hub for diamonds. 6 Chances Unfavorable Less chances has happened in past regarding any natural calamities. Only Diamond conflict has arise the certain issues for diamond traders. 41

42 CHAPTER 7 Belgium Various Export and Import items and its Partners Table 7.1 Imported Commodities and partners The various imported commodities are: Raw materials Machinery & equipment Chemicals Raw diamonds Pharmaceuticals Foodstuffs Transportation equipment Oil product The various Belgium import partners are: Netherlands Germany France UK US China Main Exports: Machinery and equipment, chemicals, finished diamonds, metals and metal products, Foodstuffs Main Imports: Raw materials, machinery and equipment, chemicals, raw diamonds, pharmaceuticals, Foodstuffs, transportation equipment, oil products. 42

43 Table: 7.2 Principal trading partners (in millions of US dollars) were as follows: COUNTRY EXPORTS IMPORTS BALANCE France 32,487 21,659 10,828 Germany 30,964 28,136 2,828 Netherlands 23,146 29,893-6,747 United Kingdom 18,400 14,563 3,837 United States 10,953 12,893-1,940 Italy 10,184 6,746 3,438 Spain 6,683 3,109 3,529 Luxembourg 3, ,743 India 3,193 1,593 1,600 Israel 3,497 1,487 2,010 Source: - Foreign trade - Belgium - export As raw materials and natural resources are not sufficient, the balance of trade is usually towards imports and thus there is always some trade deficit in Belgium. According to the 2009 estimates, Belgium had an export volume of $296.1 billion and ranked 13 th in the world. This, however, showed a tremendous drop from the 2008 figures, which shone bright at $371.5 billion. 43

44 CHAPTER 8 BELGIUM S TRADE AT INTERNATIONAL LEVEL AND WITH INDIA AND GUJARAT 8.1 Belgium - International trade Belgium's economy is dependent on international trade. From year-to-year, foreign trade accounts for approximately 70 percent of the nation's economy. This makes Belgium particularly sensitive to disruptions in global trade. Recessions or other economic problems around the world often cause reciprocal problems in Belgium's economy. Fortunately, the kingdom has a variety of trade partners so that problems in one export market are mitigated by export diversity. For instance, since companies were able to shift exports to other markets, Asia's economic problems in the late 1990s had little significant impact on Belgium. The nation's main trade partners are in the EU. In fact, in 1998 some 76 percent of Belgium's exports went to nations in the EU. In that year, the main export market for Belgian goods was Germany (19 percent), followed closely by France (18 percent), the Netherlands (12 percent), and the United Kingdom (10 percent). Most of Belgium's imports also came from the EU that provided (71 percent) of the kingdom's imported products. Germany was the main exporter to Belgium and provided (18 percent) of goods, while the Netherlands provided (17 percent), France (14 percent), and the United Kingdom (9 percent). Total foreign investment in Belgium is $68.1 billion. The Netherlands is the principal source of foreign investment (21.9 percent), followed by Germany (17.1 percent), France (16 percent), and the United States (11 percent). The United States is a major trading partner of Belgium. The kingdom is the ninth largest trading partner of the United States. In 1999, the United States exported $11.3 billion to Belgium. About half of Belgium's imports from the United States are processed and re-exported to other markets. The kingdom is home to 1,300 U.S. companies. American investment in Belgium totals $18.9 billion. The majority of this investment is concentrated manufacturing ($8.969 billion), services ($5.262 billion), and wholesaling ($2.716 billion). Belgium also has significant investments in 44

45 the United States that total $6.7 billion. The majority of these investments are in manufacturing ($2.6 billion), petroleum ($1.265 billion), and retail ($882 million). Goods and products from EU nations enter Belgium without any tariffs or duties. However, goods from nations outside of the EU face import duties and a value-added tax (VAT). Depending on the product, these taxes amount to an average of 5-6 percent of the total value of the product. Consequently, many goods from outside of the EU face a price disadvantage. Table 8.1 Belgium s Balance of Trade: Source: 45

46 Belgium reported a trade surplus equivalent to 1101 Million EUR in September of Foreign trade accounts for approximately 70 percent of the Belgium's economy. About 80% of Belgium's trade is with fellow EU member states. The major export commodity in Belgium is the automobile, medicament mixtures put in dosage, not mounted or set diamonds. Belgium imports mainly machinery and equipment, chemicals, diamonds, pharmaceuticals, foodstuffs, transportation equipment and oil products. This page includes: Belgium Balance of Trade chart, historical data and news. 8.2 India-Belgium Relations Diplomatic relations between India and Belgium were established in 1948 and our bilateral relations are cordial and friendly. In recent times, Belgium has acknowledged the growing importance of Asia and has emphasized the value of strengthening economic relations with India. 8.3 Bilateral Trade Belgium is the third largest trading partner of India in the European Union with annual bilateral trade turnover amounting Euro 7.1 billion in India is the13th largest exporter to Belgium and 9th largest importer of Belgian products. The major items of Indian exports to Belgium are- Natural/cultured pearls, Precious stones and metals; Textiles and articles; Base metals; Iron and steel; Chemical products; Articles of apparel and clothing accessories; Articles of apparel and clothing accessories; Mineral products; Organic chemicals; Machinery and Electrical Equipments etc. The major items of Indian imports from Belgium are- Natural/cultured pearls; Precious stones and metals; Base metals; Iron and steel; Machinery and mechanical appliances; Chemical products; boilers, machinery and mechanical appliances & parts thereof: Organic chemicals; Plastic and rubber; Plastics and articles thereof; Pharmaceutical products etc. The bilateral trade between India and Belgium between 2004 and 2009 has increased by 11% growing from 6.4 billion euro in 2004 to 7.1 billion euro in Indian exports to Belgium increased by 18%, from 2.2 billion Euro in 2004 to 2.6 billion Euro in Indian imports from 46

47 Belgium on the other hand increased by 7% during the same period, growing from 4.2 billion Euro in 2004 to 4.5 billion Euro in Trade and Economic links between India and Belgium Belgium is currently India s third most important trading partner within the European Union (EU), preceded only by Germany and the United Kingdom (UK). Total bilateral import and export exceeded Euro 8.7 billion in There are close to 150 Belgian enterprises formally established in India and several of the most distinguished, international Indian companies are active in Belgium. These include Tata Consultancy Services (TCS), HCL, NIIT, Jet Airways, Jubilant Organosys, Crompton Greaves and Raymond, among others. Bilateral economic relations are framed by several agreements between India and Belgium. These include a double taxation treaty, a bilateral investment treaty, a cooperation agreement in the area of science and technology and various transport agreements. A bilateral social security agreement between Belgium and India entered into force on September 1, Belgium is the first nation to have entered into such an agreement with India. 8.5 An Agreements Were Signed Between Belgian and India The Indo-Belgian signing ceremonies hold special significance in light of the rapid economic development in India. It clearly indicates the interest and commitment of Belgian companies to work in partnership with their Indian counterparts across diverse sectors to further collaboration, learning and growth, said Deputy Prime Minister, Minister of Foreign Affairs and Foreign Trade of Belgium, Steven Vanackere. The agreements signed as on (22th Nov, 2011) includes: Tractebel Engineering with GAIL India Eurostation and Immo Star Ltd with RITES Dredging International (International Seaports Dredging Ltd) with Kakinada Seaports Ltd Sarens with Larsen and Toubro Ltd. 47

48 Soudal with McCoy Silicones ZingaMetall and John Galt with Vestas Hose Division Pvt. Ltd. Belgium Luxembourg Business Association (BLBA), established in New Delhi with Belgo-Indian Chamber of Commerce industry (BCCI) with its base in Brussels AWEX will sign a letter of Intent with New Ventures India and one with the Foundation of Innovation and Technology Transfer of the Indian Institute of Technology (IIT) Port of Antwerp and Port of Mumbai. 8.6 Cultural Cooperation India has a Cultural Agreement with Belgium. Cultural exchange and cooperation takes place on a regular basis between the two countries. Belgium has not forgotten the sacrifices made by thousands of Indian soldiers in Flanders during World War I. To commemorate their memory, an Indian Memorial Pillar has been installed along side the Menin Gate in Ieper, where ceremonies are organized along side the main Armistice Day celebrations on November 10/11 every year. The Indian Council for Cultural Relations (ICCR) in association with the Centre for Fine Arts (BOZAR) organized an India Festival from October January The festival included, inter alia, art, theatre, musical and dance performances, fashion shows and a food festival. 8.7 Indian community in Belgium According to the information received from the local Government the total number of Indians upto 2006 were around 16,132 out of which 10,000 Indian nationals have obtained Belgian citizenship and remaining 6000 are involved in various economic activities. Around 2,500 Indian NRIs/PIOs, based in Antwerp mainly from Gujarat are involved in diamond trade. Their contribution to the trade and commerce of Belgium is widely acknowledged by the Belgian leadership. The proposal for dual nationality for Belgian PIOs/NRIs has been agreed to by 48

49 GOI. There are around Indian students pursuing studies in educational institutions of Belgium. 8.8 India s Exports and Imports to EU TABLE 8.2 India s Exports to EU Source: Computed from the data from India s Exports by countries Commodities; DGFT, Government of India, Ministry of Commerce, Various Issues from 2001 to

50 Table 8.3 India s Imports from EU Source: Computed from the data from India s import by countries Commodities ;DGFT, Government of India, Ministry of Commerce, Various Issues from 2001 to

51 Table: 8.4 Belgium-India total export and import in value for last 5 years: S.No. \Year EXPORT 3, , , , , %Growth India's Total Export 126, , , , , %Growth %Share IMPORT 4, , , , , %Growth India's Total Import 185, , , , , %Growth %Share TOTAL TRADE 7, , , , , %Growth India's Total Trade 312, , , , , %Growth %Share TRADE BALANCE 17. India's Trade Balance -59, , , , ,

52 TABLE 8.5: India s Country wise Export 52

53 TABLE 8.6 India s Country wise Import 53

54 Figure: 8.1 Trade Balance Fluctuations of Belgium since Source: TULLI customs Interpretation: Both Exports and imports have fluctuating trend over 20 years. At initial years exports and imports having balance,then Exports was higher than imports at 1992 to 2010 then Exports of the Europen union has been declined so trade balance shows negative 4 billion dollar. 54

55 Figure: 8.2 Monthly Import-Export and Trade Balance Interpretation: As compare to 2007, in 2011 export has been declined, approximately 10% has been declined so trade balance in also declining and show negative trade balance. Duration of both Imports and Exports declining so trade balance have not much impact. 55

56 CHAPTER 9 VALUE CHAIN OF THE SECTOR 9.1 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 high-value 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 diamond-studded 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 56

57 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. Figure: 9.1 Value Chain of Diamonds and Gold 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 57

58 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. 9.2 MARKET STRUCTURE OF THE GEMS AND JEWELLERY SECTOR Major Production Clusters The centre of the trade in India's Gems and Jewellery industry is Mumbai. Most imports of gold and rough diamond arrives in Mumbai. However, most of the processing of diamonds takes place in the neighboring state of Gujarat. The Gems and Jewellery clusters in Gujarat are as shown in the following figure. Figure 9.2 Gems & Jewellery Clusters in Gujarat Gujarat alone accounts for an estimated 80% of the diamonds processed in India. Of this, 90% are processed by diamond units located in and around Surat alone. The rest of the 58

59 diamond units are located in Ahmedabad, Palanpur, Khambhat, Rajkot, Bhavnagar, Valsad and Navsari. The diamond processing industry has spread from Gujarat to other states. Many diamond processing units have been set up in Mumbai in Maharashtra. There are also jewellery units in Trishur in Kerala, Coimbatore in Tamil Nadu, Jaipur in Rajasthan, and Goa. Mumbai continues to be the main diamond trading centre of India accounting for the dispatch of 93% of diamond exports. Major Players A brief profile of major players in the Indian Gems and Jewellery Industry is as below: Rajesh Exports Limited Gitanjali Group Su-Raj Diamonds & Jewellery Ltd. Suashish Diamonds Ltd. Shrenuj & Co. Ltd. Tanishq Hindustan Diamond Co. Pvt. Ltd. Vaibhav Gems Ltd 59

60 9.3 Major Export Markets Figure 9.3 Destination wise exports of gems and jewellery The destination-wise share of exports of gold jewellery from India is as below. The total value of exports of gold jewellery was $28.25 billion in the year Exports to USA and UAE alone account for about 58% of the exports of gold jewellery from India. 9.4 COMPETITIVE MARKETS OVERVIEW WITH INDIA The gems and jewellery sector can be categorised into the following sub-sectors based on characteristics, processing techniques, preciousness in terms of price range and marketability. Gemstones -Diamonds and colored stones (precious, semi-precious and synthetic) Jewellery- Plain Gold, Studded, Silver, Costume Pearls - The global market for gems and jewellery today is pegged at US$ 85 billion with key markets having registered an average compounded annual growth rate (CAGR) of 5-10 per cent in the last decade. 60

61 The global market for Gold is estimated at 3300 tones. South Africa is the world's largest producer of gold, followed by U.S.A and Australia. Together, these countries account for 45 per cent of the world's total gold production. India is the largest consumer of gold, followed by the U.S.A. In the production of Silver, the Americas have near monopoly - Mexico, Peru and the United States are the top three silver producing countries. Platinum is an extremely rare precious metal. More than 90 per cent of all platinum supplies come from South Africa and Russia. With increased economic development, the demand for the metal has grown at a faster pace than it is being mined. The United States is the world's leading consumer of platinum overall, while China has emerged as the leading consumer of platinum jewellery. Jewellery manufacturing is traditionally dominated by players from 3-4 countries. 1. United States While a growing number of American manufacturers export their goods around the world, the sheer size of the domestic market keeps a large portion of the goods at home. 2. Italy World s largest producer of fine jewellery, with about 8,200 factories annually Producing an estimated US$ 6.4 billion worth. Italy s strength lies in plain gold jewellery. 3. Thailand Major global supplier of quality jewellery over the last two decades. 4. Hong Kong/China Produces a substantial portion of the world jewellery market Thailand s strength is in gemstone jewellery China and Hong Kong are strong in both gold and studded jewellery 61

62 Over the years, global markets have been impacted by several developments like falling trade barriers, increasing competition, changing customer preferences and developments in technology in several areas. The global jewellery industry is being transformed by a few key trends such as: Increasing competition among top producing countries. Emergence of different materials - different alloys within gold, as well as Non-gold jewellery. Emergence of new manufacturing techniques. Requirement of stricter quality norms and hallmarking. In this context, India is fast emerging as a leading destination for jewellery manufacturing in the world. The following sections discuss India's gems and jewellery sector in detail with a specific focus on the following areas: Significance of India within the global gems and jewellery sector The structure and current scenario of the sector in India India's competitive advantages in the sector Future outlook 9.5 India is a leading player in the global gems and jewellery market The gems and jewellery industry occupies an important position in the Indian economy. It is a leading foreign exchange earner and also one of the fastest growing industries in the country. The two major segments of the sector in India are gold jewellery and diamonds. Gold jewellery forms around 80 per cent of the Indian jewellery market, with the balance comprising fabricated studded jewellery that includes diamond studded as well as gemstone studded jewellery. A predominant portion of gold jewellery manufactured in India is consumed in the domestic market. In diamonds, however, a major portion of 62

63 rough, uncut diamonds processed in India is exported, either in the form of polished diamonds or finished diamond jewellery. Besides being the largest consumer of gold, India is also the leading diamond- cutting nation in the world. Table 9.1 India Gems & Jewellery Industry-Highlights India Gems & Jewellery Industry - Highlights Jewellery market size - US$ 13 billion Diamond jewellery - US$ 1.2 billion Gold jewellery market growth year on year 15% Diamond jewellery market growth 27% The Indian gems and jewellery industry is competitive in the world market due to its low cost of production and availability of skilled labour. In addition, the industry has a worldwide distribution network, which has been established over a period of time. India has set up more than 3,000 offices worldwide for promotion and marketing of Indian diamonds. The Indian diamond industry has acquired leadership position in cutting and polishing of rough diamonds. India has the world's largest cutting and polishing industry, employing around 800,000 people (constituting 94 per cent of global workers) with more than 500 hi-tech laser machines. The industry is well supported by government policies and the banking sector - around 50 banks provide nearly US$ 3 billion credit to Indian diamond industry. India is expected to have its diamond bourse functioning at Mumbai in India is therefore a significant player in the world gems and jewellery market both as a source of processed diamonds as well as a large consuming market. 63

64 The sector is largely unorganised at present with a small but growing organised sector: The Indian gems and jewellery sector is largely unorganized at present. There are over players across the country in the gold processing industry, of which only about 80 players have a turnover of over US$ 4.15 million (Rs 200 million). There are about 450,000 goldsmiths spread throughout the country. India was one of the first countries to start making fine jewellery from minerals and metals and even today, most of the jewellery made in India is handmade. Figure 9.4 Share of India s Gem & Jewellery Sector The industry is dominated by family jewelers, who constitute nearly 96 per cent of the market. Organized players such as Tata with its Tanishq brand, have, however, been growing steadily carving a 4 per cent market share. As India's jewellery market matures, it is expected to get more organized and the share of family jewelers is expected to decline. There are more than 6000 players in domestic diamond processing industry. The average gestation period for setting up a diamond cutting and polishing unit is 15 months. The low gestation period, coupled with low capital cost allows easy entry into the sector. 64

65 This has led to the industry being largely characterized by a large number of small scale players. However, just as in the case of jewellery, the share of the organized sector has increased significantly in recent years due to an increase in demand for better and finer quality finished goods. Figure 9.5 Comparative position of India in Global Gems & Jewellery Sector The gold jewellery market is growing at 15 per cent per annum and the diamond jewellery market, at 27 per cent per annum. The emergence of branded jewellery is a new trend that is shaping the Indian jewellery market Branded jewellery is a relatively new concept in the sector, and has positioned itself on the quality, reliability and wear ability factors. The branded jewellery market in India is estimated at US$ million per annum. Trends also show that traditional handcrafted jewellery is slowly giving way to machine-made jewellery. 65

66 9.6 Competitive Advantage India India boasts of around 450,000 goldsmiths, 100,000 gold jewelers, 6,000 diamond processing players and 8,000 diamond jewelers Low-cost destination Largest consumer of gold in the world around 20 percent of the global consumption Largest diamond cutting and polishing centre in the world - nearly 9 out of 10 diamonds sold worldwide are cut and polished in India Dedicated SEZ s for Gems and Jewellery sector. Government Incentives Rough colored precious gems stones are exempt from customs duty Duty-free import of consumables for metals other than gold and platinum, up to 2 percent of freight on board value of exports Import of gold of 18 carat and above under the replenishment scheme No import duty on polished diamonds Export of colored gemstones on a consignment basis has been allowed Interest subvention of 2 percent on pre-shipment credit extended to March 2010 Excise duty on branded jewellery to be reduced from 2 percent to Nil Customs duty on unworked Corals to be reduced from 5 percent to Nil EU Proximity to Western Markets Design and technological expertise, for instance, Italy is known for its strength in design and use of advanced equipments and machineries Antwerp in Belgium is known as the trading hub for diamonds. 66

67 Government Incentives The European Union has reduced tariffs on gems and jewellery originating from India under its Generalised System of Preferences (GSP), which has been extended for the period from January 5 1, 2009 until the end of

68 CHAPTER 10 DEMAND DRIVERS OF THE GEMS AND JEWELLERY SECTOR 10.1 Demand drivers of the Jewellery Segment The demand drivers for the jewellery fabrication segment are as below: Figure 10.1: Demand drivers for the gems and jewellery sector Continuous traditional demand: Jewellery is an important constituent of the Indian culture. Traditionally in India, the demand for gold and diamond jewellery is driven by festivals and weddings and there is remarkable historical and religious significance too. India is also the largest consumer of gold in the world. In marriages, gold jewellery is the gift preferred by the near relatives of the bride and the groom. Gold jewellery is very popular among farmers, with an upsurge in gold sales after a good agricultural season. Buying of gold is an important part of every stage of an Indian citizen's life. Given the Indian culture, this stream of demand is thus continuous and is only expected to rise going ahead. 68

69 Important savings and investment vehicle: Apart from its religious and social significance, gold is valued as an important savings and investment vehicle in India, and is the second preferred investment behind bank deposits. This can also be attributed to the fact that gold is highly portable, holds its value well in times of uncertainty and can be easily converted to cash either through sale or for guarantying loans. Further, the emergence of use of jewellery as a fashion statement as well as for daily use and gifting has fuelled demand growth in the Gems and Jewellery sector. Apart from this, the increasing share of diamond jewellery is explained below Demand drivers of Diamond Jewellery The demand drivers for the diamond processing and jewellery sector are as below: Figure 10.2 Demand drivers for diamond jewellery Increasing acceptability of diamond jewellery in the domestic market: Traditionally, jewellery in India has mainly been gold jewellery. Diamond jewellery is lesser accepted in India due to factors such as myths associated with diamonds being unlucky in 69

70 certain instances and the higher cost of diamonds. This is now changing with an increased acceptance of diamond jewellery in the domestic market. Diamond as a fashion statement for the affluent: Diamond jewellery is increasingly serving as a fashion statement for the affluent to differentiate themselves from others wearing traditional jewellery/gold jewellery. Increasing affordability: Employment of women in the workforce has been increasing due to the changing mindsets and increasing education levels among women. This has resulted in women having more impact on the purchase decisions; and women having also started purchasing jewellery for themselves as against earlier trends of jewellery purchase being primarily a family decision. Increased disposable income for working couples and lifestyle changes have aided this. Exports as a driver: As seen earlier, exports have been growing year-on-year and the 5 year CAGR ( to ) is about 13%. India currently produces around 95% of the world's cut and polished diamond pieces. By carat weight, India is estimated to process 80% of world rough production by volume and 58% by value. India is also now increasing its presence in the larger diamonds space. Value addition from processing to jewellery: Though India processes a large number of diamonds, most of them are re-exported after polishing. There exists scope to increase value addition through setting into jewellery (jewellery fabrication) Drivers of competitiveness of the Gems and Jewellery Sector Industry standards, certification, and hallmarking: By and large, the Gems and Jewellery industry in India has been indifferent to the adoption and establishment of formal or informal industry standards. However, as the industry has grown and more and more businesses have started transacting on a global basis, a need has arisen for establishing standards. However, in India, one of the largest markets for precious jewellery, quality standards are conspicuous by their absence. Hallmarking is restricted to a minor portion of sales, with the bulk of the 70

71 consumers unaware of the exact cartage of the jewellery they buy. It is expected that the industry will see an increasing level of adoption of hallmarking in gold and certification in gemstones and this is critical to its competitiveness. Processing of larger size diamonds: The Indian Gems and Jeweler industry has been built on polishing lower size and quality stones. Looking forward, since India already enjoys domination in the world CPD market in general, and for smaller-sized diamonds in particular, the scope for significant increase in market share and growth in the traditional small-size diamond exports is limited. Industry leaders are now seeking further growth through processing of larger size stones, and manufacture of diamond jewellery. Indian industry can now increasingly process the full range of sizes and qualities of stones utilizing not only a cheap and abundant workforce, but also advanced technologies. Future growth is likely to be largely driven by the cutting and polishing of medium and large stones (currently dominated by Belgium and Israel), with consequently higher unit realizations. The Indian Gems and Jewellery GJ industry is already reporting increased growth in the larger-size segment. Export data from the GJEPC also reports a gradual shift in Indian exports to higher value segments, reflected in higher per carat realizations. Larger-sizes command higher per carat realizations and profits. Availability of labour at competitive wages: Labour is a critical component in the value chain of the Gems and Jewellery sector. Labour in India, as compared to other countries, is cheap, and India thus stands at an advantage over its global competitors in this industry. Availability of skilled manpower is a key strength that has enabled growth in India's Gems and Jewellery sector. India has a large pool of skilled artisans with vast traditional knowledge and expertise in jewellery making. It also has the largest resource pool in diamond cutting and processing. India also has a good blend of technically trained designers who are well-versed in latest 2D and 3D design software. India also has one of the lowest costs in diamond cutting. Government Support: The Indian Government has supported the Indian Gems and Jewellery sector with policies such as waiver of customs duties on the import of rough diamonds, permission for personal carriage of jewellery through Hyderabad and Jaipur Airport as well, in 71

72 addition to Delhi, Mumbai, Kolkatta, Chenai and Bangalore, establishment of Gems and Jewellery SEZs, etc. This continued support is critical to the competitiveness of this industry Key Success Factors and Risk Factors of the Gems and Jewellery sector Key Success Factors Movement from unbranded to branded jewellery and increase in fashion dictated buying: Over 90% of the jewellery sold in India, is mainly sold by traditional '"family jewellers'" and the unorganized sector contributes to about 96% of the total jewellery sales in the country. Thus, currently the Indian market remains highly fragmented. This scenario is seen to be changing, though slowly, with the entry of players such as Tanishq and Gitanjali, and the trend of supermarkets like Lifestyle and Shoppers Stop having jewellery outlets. Hallmarking and Certification: Increasing consumer awareness and need for certification by BIS and hallmarking have served as a means for firms to differentiate themselves in the market. Increased use of technology: The Gems and Jewellery business had traditionally involved a large content of manual labour. Though this still remains the case, a greater use of technology is seen in this industry. For example, factories have started using more machine-made designs, laser soldering is replacing manual soldering, investments in modern manufacturing and quality systems is increasing, etc. Transformation from family owned businesses to professionally managed businesses: Traditionally in India, the majority of India's diamond workforce is employed by small units that process diamonds on a job-lot basis. At the low-end, family units processes diamonds make jewellery. Even at the retail end of the value chain, people in India generally buy jewellery from their 'family jewellers'. This structure makes it less possible to bring in professionalism into the industry, which will be key going ahead given the threats from other 72

73 diamond processing/jewellery making nations. Thus for firms in the Indian Gems and Jewellery sector to prosper, a transformation from family owned businesses to professionally managed businesses is critical. Key Risk Factors Limited Standardization: In India, jewellery consumption is primarily of gold. The bulk of the Indian jewellery buying is still rooted in tradition, and jewellery is sold in traditional designs. Gold jewellery is also bought as an investment. In the present system of selling gold jewelerry in India, the purity may or may not be standard and the buyer can lose - cheating on caratage (and purity) is widespread. Possible Long-Term Threat from China: Although India currently enjoys dominance in the world's cut and polished diamonds market, China may emerge as a viable rival, if not in the near term, certainly in the longer term. An increasing number of diamond processors from Israel and Belgium, and even India, are setting up facilities in China, for reasons like the cheap and disciplined labor force, significant increase in potential consumers in the high- income segment within the country and the steadily improving quality of Chinese workmanship. Technology is another area where the Indian industry faces a long-term threat from China. Threat from Polishing in Producing Nations: The preference for polishing diamonds in the producing countries has been seen to be growing. There has been increased political pressure by major diamond producing countries in Africa to gain further economic benefits from diamond production through jobs creation in a domestic cutting and polishing industry. Polished trading through the manufacturing and trading centers made considerable gains from 2009 as sellers capitalized on growth in consumer markets. Trade in India exceeded even 2008 levels, while the strong increase in imports to Belgium and Israel indicate that growth in those 73

74 centers may have been stimulated by strong inter-dealer trading, or that dealers in those mar- kets were hoarding stock to sell at a later date in anticipation of higher prices (Figure 4). Polished trading was largely influenced by tough price points throughout the year. Manufacture- in margins were persistently tight due to high rough prices, while polished buyers resisted higher seller asking prices. Figure 10.3 Polished Diamond Trade at the Manufacturing centers 3. Rough Market a. Demand Factors Demand for rough by far outpaced growth seen in the rest of the diamond pipeline, as did the recovery in rough prices. The rebound was influenced by a number of factors, including: Strong growth of consumer markets in China and India and signs of recovery in the U.S. The cautious production ramp-up by De Beers which kept supply levels below demand and resulted in shortages in the rough and polished markets by year-end. Strong demand in India as Surat-based manufacturer's ability to buy rough was helped by the easier credit terms allowed by the Indian banks compared with their Belgian and Israeli counterparts. 74

75 Indian manufacturers were intent to keep their factories running at full capacity, even if short- term demand had not filtered through at the same level along the pipeline. Price speculation as traders expected both rough and polished prices to rise further. These trends resulted in high increases in rough trading as India, the largest and most influential manufacturing center, grew its imports to exceed 2008 levels. Belgium's rough exports were larger than its imports indicating Antwerp's growing strength as a trading, rather than manufacturing, center. Similarly Israel's rough exports grew at a higher pace than its imports. Figure 10.4 Rough Diamond Trade at the Manufacturing Center 75

76 CHAPTER 11 LEGAL PROCEDURE OF EXPORT-IMPORT FROM BELGIUM TO INDIA 11.1 Diamond Office Diamond Office was established with a view to fulfilling all the necessary formalities on behalf of the Belgian diamond dealers to import and/or export diamonds in Belgium. At first, this organisation worked independently, later it became a department of the HRD, the Diamond High Council. Diamond Office, situated in the heart of the Antwerp diamond centre, consists of three departments: - Import department: here, all formalities for the import of diamonds in Belgium are fulfilled in co-operation with the Belgian customs authorities. - Export department: here, all formalities for the export of diamonds in Belgium are fulfilled in co-operation with the Belgian customs authorities. - Expertise department: here, all parcels of diamonds (import and export) are checked by sworn experts under supervision of an officer of the Federal Public Service Economy, Economic Potential, Licensing Service (FPS Economy). Who can import and/or export diamonds in Belgium? Only registered diamond traders can import or export diamonds in Belgium. The registration must be effected at the FPS Economy. Diamond dealers residing on Belgian territory have to submit the following documents to register: 76

77 1 Upon registration as a self-employed person: a) A copy of the identity card; b) Proof of the company registration number issued by the Crossroads Bank for Companies; c) The profession card, issued by the FPS Economy, if the self-employed person is a foreign national. 2 Upon the registration of a company: a) A copy of the identity card of all business managers; b) Proof of the company registration number issued by the Crossroads Bank for Companies; registration will not be allowed if the company has not been registered with the Crossroads Bank beforehand; c) A copy of the notarial instrument of establishment and/or extract from the Belgian Official Gazette; d) The profession card, issued by the FPS Economy, if the business manager is a foreign national; e) If the company exercises the mandate of director, business manager or member of the management committee at another company, the permanent representative must present a copy of his identity card and appointment; f) If none of the business managers of the Belgian company is in possession of a permanent place of residence in Belgium, they grants powers to an authorized person residing in Belgium and representing the business manager(s). The latter must present a copy of his identity card and appointment, signed by both parties. Each diamond dealer residing in the territory of the European Union and who wants to export or import diamonds through Belgium from or to the European Union, also has the obligation to register at the FPS Economy, for which he has to submit evidence that he has fulfilled all 77

78 formalities, established by the European member state in which he is residing, to exercise the profession of diamond dealer. A foreigner or a foreign company residing outside the EU, cannot import or export diamonds in Belgium in his own name: the foreigner or foreign company has to contact a Belgian company, registered with FPS Economy, which will execute all formalities for the import and/or export of the diamonds Customs Duties - V.A.T. - Expenses Customs Duties and VAT Export: In Belgium the export of diamonds is exempt from taxes: no duties or VAT have to be paid. The importer must pay 21% V.A.T., calculated on the customs value, i.e. the amount mentioned on the invoice (freight and insurance included) converted into EURO s (at the rate imposed by the Ministry of Finance). However, Belgium has a unique system of V.A.T.-exemption when importing diamonds. A diamond dealer can benefit of VAT-exemption, both for imports and for transactions on the local market, on condition that he/she fully complies with all stipulations of Article 42 & 4 of the VAT-Legislation. For practical purposes, he/she has to sign a declaration to the HRD Diamond Office declaring whether or not he/she wishes to work under the VAT-exemption. The diamond importer does not have to pay the amount of the V.A.T. in cash at the precise moment of import. In case of goods coming from outside the E.U., Diamond Office will advance this amount to the Customs and will send an invoice to the diamond dealer at the end of the month. 78

79 Concerning the imports of E.U.-goods, Diamond Office does not intervene: the importer himself will inform the V.A.T.-administration by means of his bookkeeping. From January 1st 1993, the V.A.T.-administrations inside the European Union execute a double check on the movement of goods: therefore it is obligatory to mention the V.A.T.-number of both the importer and the exporter on the commercial invoice Other expenses 1. The diamond dealer will also be charged with the expenses for the administration and the expertise of his goods at Diamond Office: % of the value of the goods and only half for return shipments. There is a discount of 10 % on shipments presented before 10 a.m. 2. On the import of rough diamonds (valued at more than 7,44 EURO/ct, return shipments excluded) coming from outside the E.U., from countries listed based on international treaties, the importer also has to pay "Social Fund", i.e. 1/3 % of the value of the goods. This contribution is collected by the Internal Compensation Fund. Non-Belgian diamond traders have to pay locally all the expenses in cash Licenses For the import of diamonds coming from non-e.u. countries, a license is required. In most cases, Diamond Office disposes of "general" import licenses, i.e. overall licenses that can be used by all registered Belgian diamond dealers. It can however occur that the Belgian company itself will have to apply for a personal import license, available from the FPS Economy. For the export of diamonds to non-e.u. countries a license is equally necessary. Diamond Office also holds "general" licenses covering most exports. 79

80 No license is required if the diamond trader voluntarily declares his intra-community trade. In this case a Statistical Declaration needs to be fulfilled 11.5 Kimberley Certificate Rough diamonds can be imported and exported only when accompanied by a Kimberley Process (KP) Certificate and traded between KP participants. In the EU 3 authorities (based in Antwerp, London and Idar-Oberstein) are entitled to verify the trade in rough diamonds imported or exported in the EU. In Belgium the FPS Economy verifies the import and issues the KP Certificates for export at Diamond Office. Diamond traders based in a member state were there is no authority, have to submit their rough shipments to an authority in another member state where the verification shall be completed. If the diamond trader chooses Belgium for the verification, he needs to be registered at the FPS Economy and have the rough diamond shipment submitted to Diamond Office, just like a Belgian diamond trader. For export of rough diamonds the diamond trader has to provide conclusive evidence to prove that the rough diamonds he possesses were lawfully obtained (by purchase invoice, KP certificate). If a diamond trader is a member of a diamond organisation recognized by the EC, he only has to submit the conclusive evidence when requested. The diamond trader will always receive an authenticated forgery-resistant copy of the KP Certificate, that has to be kept together with a copy of the invoice. He also has to keep a register of all diamonds coming in or going out. 80

81 11.6 Stock declaration All diamond dealers and manufacturers have the obligation to fill in an annual stock declaration, that has to be sent to the FPS Economy, Italiëlei 124 pb Antwerp. Starting from the declaration of 2004 a new form has to be used. This form exists in an electronic version (may be requested by diamond@mineco.fgov.be) 11.7 Carnet A.T.A. The Carnet A.T.A. (Admission Temporaire - Temporary Admission) is a customs document issued by the Chamber of Commerce that attests that goods will only be exported temporary (samples, for exhibitions and fairs,...). Goods imported or exported in countries where the Carnet is acknowledged by the authorities are exempt from all taxes. In Belgium the Carnet A.T.A. is officially acknowledged: it permits the Belgian diamond dealers to travel around in countries outside the European Union with their goods without paying taxes. Goods covered by the Carnet A.T.A. are not considered as merchandise. For this reason, all goods having been exported have to be re-imported. Only in exceptional cases, part of the diamonds can be sold abroad. Foreign diamond dealers can also temporary import diamonds into Belgium on a Carnet A.T.A. without paying any taxes. But again the foreign diamond dealer has to present the goods at Diamond Office where the import will be registered on the name of a Belgian dealer. In case the foreign dealer wants to sell some of his goods, he has to declare the sold goods as a definitive import at Diamond Office on the name of the Belgian buyer. Note: From January 1st 1993, the Carnet A.T.A. is no longer used for temporary export and/or import between E.U.-countries as from that date on the borders between these countries were opened, resulting in free trade within the E.U.. 81

82 11.8 Import and Export Procedures Extra-community shipments: COMPULSORY check by the FPS Economy at Diamond Office For every extra-community import or export of diamonds a declaration regarding the value, the weight, the characteristics and the documented source of origin of the diamonds to be imported or exported has to be made to the FPS Economy at Diamond Office. Here also a physical check takes place by sworn experts under supervision of the FPS Economy. Intra-community shipments: VOLUNTARY subjection to check by the FPS Economy at Diamond office possible. The declaration of intra-community shipments to the FPS Economy at Diamond Office is no longer compulsory according to the Royal Decree of 30 April However, the new legal regulation foresees the possibility of a voluntary declaration to the FPS Economy at Diamond Office if the diamond dealer requests it. The diamond dealer is free to choose whether he wants to have the intra-community shipments declared and physically checked or not Import Procedure In general Import Procedure Each parcel of diamonds sent to Belgium has to be addressed as follows: Name of the registered Belgian diamond company C/O Diamond Office Hoveniersstraat Antwerpen 1 82

83 As soon as the parcel arrives at Diamond Office, the diamond dealer will be notified. The dealer comes to Diamond Office where he submits a correct invoice to the import department, stating: the name and complete address of the seller and the buyer, a complete detailed description of the goods (quantity, unit price, total amount, possible other expenses). If necessary, he has to present his personal license. In case of a return shipment, he also has to present his export document. When the documents are ready, the diamond dealer has to go to the expertise room. There the sealed parcel will be opened to check whether the contents are conforming to the invoice. The goods will be verified by one of the sworn in experts under supervision of the FPS Economy. If the contents of the parcel correspond with the goods on the invoice, the dealer can leave taking his goods with him after he has signed a receipt. There are three possible ways for parcels of diamonds to enter Belgium: via a transport contractor/courier service, by means of personal transport or by post. Transport contract Diamonds sent from abroad via the services of a transport contractor usually arrive at the national airport in Zaventem, or possibly at the Antwerp airport (Deurne). At the request of the diamond dealer to whom they are addressed, one of the several Belgian transport firms who specialize in the declaration and transport of diamonds, will declare the goods at the customs department in the airport, after which the sealed parcels of diamonds are brought to Diamond Office. These transports occur at least once daily. At the customs department in Diamond Office, the sealed parcels are locked away in a safe - under supervision of the customs officers - until the Belgian dealer comes to Diamond Office with his invoice to collect his goods. 83

84 E.U.-parcels do not have to be declared at the customs but are also brought to Diamond Office where they are stored in another safe until the diamond dealer comes to pick up his goods. As soon as a parcel has arrived at Diamond Office, Diamond Office or the transport firm will notify the diamond dealer. All he has to do is to present himself with the required invoice at Diamond Office, where the staff of Diamond Office will complete all the necessary documents to declare the goods in his name. For E.U.-goods the staff of Diamond office will complete other documents (for statistical reasons and for the V.A.T.-administration) Personal carriage A diamond dealer who personally brings his goods to Belgium from abroad, has to declare his goods to the Customs as soon as he enters the territory of the European Union: in the airport - when he arrives by plane - or at the border - if he enters the country by car or by train. In case of airfreight, the diamond dealer has to leave his goods in the hands of the Customs at the airport (for which he will receive a receipt). He has two possibilities to get his goods transported to Diamond Office. The first procedure is that he personally picks up his parcel as soon as he has made an electronic declaration in N.C.T.S. and is in the possession of a bank guarantee (i.e. a guarantee covering the V.A.T. that has to be paid eventually at Diamond Office) and a written permission of Diamond Office. The second possibility is that the dealer gives his receipt and an invoice to one of the specialized transport companies who will then do all the necessary to bring the goods to Diamond Office: making the electronic declaration and guaranteeing the V.A.T. A dealer arriving by car at the border of the E.U. also needs to make an electronic declaration in N.C.T.S. and a bank guarantee to bring his goods to Diamond Office. He can - if he wishes - 84

85 call on a forwarding agent at the border who will stand surety in case he does not have a bank guarantee. Once the parcel arrives at Diamond Office, the same procedure takes place as described above: on the basis of the invoice the necessary documents are prepared and the diamond dealer passes the expertise. Note: There are no customs formalities to be fulfilled at the border for trade between two countries of the European Union. If the diamond dealer has chosen for the voluntary declaration of intra-community shipments, then he still has to come to the Diamond Office for registration of his goods. Post Parcels Parcels of diamonds sent from abroad by post should be addressed as mentioned above (1.1). The parcels will then arrive at a special post office situated inside the building of Diamond Office. The staff of Diamond Office or the post will advise the dealer of the arrival of his goods. As soon as the dealer comes to Diamond Office with his invoice, all the necessary formalities will be fulfilled to declare or to register his merchandise Export Procedure A diamond dealer, who wants to export his goods, has to come to Diamond office. Besides his merchandise he should also be in the possession of following documents: a few copies of his commercial invoice, a Statistical Return (if the diamonds are sent to another E.U.-country) or an application form to make use of the "general" licenses (in case the diamonds are sent to a country outside the E.U.) and additional shipping documents if the goods are sent through the post or a transport company. 85

86 A diamond dealer, who does not have the above-mentioned documents, can always appeal to a special service inside Diamond Office where these documents can be prepared for him. With his documents and his merchandise, the diamond dealer first goes to the expertise room where - under supervision of the FPS Economy - one of the sworn in experts checks the contents of the parcel. After the experts have approved the documents and the parcel is sealed, the diamond dealer has to go to the export department. At the export department, the customs declaration is made up, as well as a Kimberley Certificate (in case of rough diamonds) validated by the FPS Economy. In special cases (when there is no "general" license) the diamond dealer will have to present an export license on his own name. Goods leaving for another E.U.-country are registered here for statistical reasons only. How the procedure continues depends on the way the diamond dealer is going to send his merchandise abroad: as personal carriage, by post or by a transport company. Personal Transport When leaving the export department for a country outside the E.U., the diamond dealer receives a copy of the customs document. The dealer has to show this document and the sealed parcel to the Customs at the border or in the airport when leaving the E.U. When leaving the European Union by car or by train, the diamond dealer also needs a bank guarantee (as guarantee for the V.A.T. in the countries he passes), which he has to show the Customs at Diamond Office first. Post Parcels A diamond dealer, who wants to send his parcel abroad by post, leaves it at the export department where it will be stored in a special safe. 86

87 Several times a day, the staff of Diamond Office brings these parcels to the post office in the same building from where they will be sent to the consignee. Shipping companies When the export customs document is validated, the dealer receives a copy of the document. He leaves the parcel, accompanied by copy of the customs document and the shipping documents at Diamond Office where it will be stored in a special safe. At least once a day several specialized shipping companies come to Diamond Office to pick up the goods, which are destined for them. 87

88 CHAPTER 12 LEGAL PROCEDURE OF EXPORT-IMPORT FROM INDIA AND OTHER GOVERNMENT INITIATIVES Introduction The gems and jewellery sector is a major foreign exchange earner. Due to its importance in India s 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 badlyaffected 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. 88

89 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 trademotivational events such as seminars, workshops, exhibitions, festivals etc. 89

90 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 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 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 India s Foreign Trade Policy , 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. 90

91 12.4 Government Initiatives to Boost the Sector Measures taken by the government in the Union Budget : 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 ), silver (including silver plated with gold or platinum) in powdered form (HS code ), unwrought (HS code ) and other (HS code ) 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: 91

92 Increasing the post-shipment Rupee export credit period from 90 days to 180 days from November 28, Increasing the pre-shipment rupee export credit period from 180 days to 270 days from November 15, 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, 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 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. 92

93 Import restrictions on worked corals have been removed to address the grievance of gem and jewellery exporter 12.6 Foreign Trade Policy 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 Special Economic Zones (SEZ) In order to boost foreign trade and investment, the Indian government introduced the SEZ policy in April 2000 under the Export-Import (EXIM) policy. Under the policy, the government allowed companies to set up units in SEZ to manufacture goods or provide services that facilitated a hassle-free environment for exports. However, it was the SEZ Act 2005 passed in February 2006 that laid down regulatory frameworks and rules for setting up and for the operation of SEZs. With extended tax holidays up to 15 years from previous tax holiday of 10 93

94 years, the SEZ Act managed to generate considerable level of interest; as a result, the number of SEZs witnessed a sharp rise in a matter of few years. The Act envisages promoting exports of goods and services, promoting FDI, creating employment, generating economic activity and most importantly, developing infrastructure. To promote the exports of gems and jewellery, the government has set up various SEZs with specific incentives. Some important government policies relating to SEZs in the gems and jewellery sector are highlighted below: No import or export of rough diamonds will be permitted unless the shipment parcel is accompanied by the Kimberley Process Certificate issued by the Development Commissioner. Cut and polished diamonds and precious and semi-precious stones (except rough diamonds, precious or semiprecious stones having zero duty) shall not be allowed to be taken outside the SEZ for sub-contracting. A gem and jewellery unit may receive plain gold or silver or platinum jewellery from the Domestic Tariff Area or from an EOU or from a unit in the same or another SEZ in exchange of equivalent content of gold or silver or platinum contained in the said jewellery after adjusting permissible wastage or manufacturing loss allowed under the provisions of the Foreign Trade Policy read with the handbook of procedures. Table 12.1 Operational Gem & Jewellery SEZs in India 94

95 Table 12.2 SEZs Approved under the SEZ Act, 2005 Table 12.3 List of Valid in Principle Approvals T 95

96 Table 12.4 Formal Approvals granted in the Board of Approvals 12.8 Diamond, Gem & Jewellery Export Promotion Schemes Policy The Policy relating to Replenishment (REP) Licence, Diamond Imprest Licence, Bulk Licence and Schemes for gold/ silver/platinum jewellery is given. Replenishment Licence An application for REP Licence may be made to the licensing authority concerned along with the documents prescribed therein. The application shall be filed within six months following the month/quarter during which the 96