Chennai: It is common knowledge that India imports rough diamonds from overseas, cuts and polishes them and exports them. Well, it is not as simple as that. India is also re-exporting part of the rough diamonds it has imported and the quantity of these re-exported roughs is almost equal to the polished diamonds it exports. While the industry body maintains that roughs are re-exported to overseas units set up by Indian diamantaires, some industry insiders argue that this circular trading is an “open secret”.

In FY18, the country imported 1,876 lakh carats of rough diamonds. After the polishing wastage, it exported 348 lakh carats of cut and polished diamonds. At the same time, it re-exported 402 lakh carats of rough diamonds as well.

According to Colin Shah, Vice Chairman of Gems and Jewellery Export Promotion Council, some of the Indian diamantaires, who have set up processing centres in Africa, Russia and China in recent years, are importing the roughs, sorting them in the country and re-exporting to their units abroad. ‘Of late, it has become difficult to do manufacturing in India. They choose to set up processing units abroad for ease of doing business and better availability of finance,” he said.

However, the re-export phenomenon is not a recent development. In FY17, the country exported 322 lakh carats of cut and polished diamonds as well as 300 lakh carats of roughs. In FY16 it was 335 lakh carats and 305 lakh carats respectively.

“If people can be trained to cut and polish abroad, they can also be trained to sort and plan. It will save on freight costs on bringing the roughs here from Dubai, Belgium or Africa and sending them to their overseas units,’ argues an industry insider who did not want to be named.

According to him, there is a substantial rate differential between rupee-denominated domestic bank finance and dollar-denominated finance at LIBOR rates even after covering the cost involved in re-exporting. Some are keen to make use of this rate arbitrage. Besides, they also want to maintain their trade turnover levels for bank finance purposes. “Hence they indulge in this circular trading and it is an open secret in the industry”, he said.