The Indian government’s decision to raise the import duty on cut and polished diamonds, semi-processed stones, half cut or broken diamonds and lab-grown stones and processed colored gemstones to 7.5 percent from 5 percent was exactly the type of news the industry on sub-continent could do without.
The government said the move was aimed at attempting to reduce India’s current account deficit. And, to be fair, the other items on the list were of the everyday variety which made defending a hike on customs tax for precious stones difficult a tough gig. The list included, for example, air-conditioners, refrigerators, washing machines, footwear, furniture fittings and tableware.
The government is concerned by the current account deficit and capital outflows. The rupee has dropped sharply against the US dollar – down 15% against the greenback so far this year which has pushed up the price of crude oil. Global crude oil prices have been rising steadily, thus straining India’s finances. In October, Brent crude oil prices breached the $85-per-barrel level for the first time in more than four years, and there are fears that the $100-mark will be breached.
That means that India is having to spend more dollars to pay for its fuel requirements, 80% of which is met through imports. And that is what is behind the rupee’s decline. Some analysts believe it won’t be long before the rupee crosses the psychologically important 75 to the dollar mark.