Investigators say black money the reason why imports exceed exports

Tuesday, 23 December 2014 – 6:30am IST | Place: Mumbai | Agency: dna
More imports than exports running into Rs 89,400 crore over the past eight years Roughs worth Rs 57,600 crore re-exported, hurting India’s interest and labour Difference between expected export and actual exports over the past 10 years could be Rs.2.3 lakh crore

When dna reported on November 20 that India’s Enforcement Directorate (ED) had been put on high alert as trade-based money laundering is bleeding the economy, few could comprehend the extent to which the diamond industry itself might be involved in such transactions.

Several banks such as ING Vysya, Bank of India, IndusInd and Citi were called in by the ED for enquiries.

Computations done by dna and sent to the Gems and Jewellery Export Promotion Council (GJEPC) and the ministry of commerce for clarification indicate that the diamond industry could have been one of the largest generators of black money that was salted away overseas for at least 10 years. Both the GJEPC and the ministry refused to comment.

dna asked GJEPC and the ministry, using supporting spreadsheet to justify its computations. Why did GJEPC’s net export of diamonds, which used to be positive till 2006-07, suddenly turn negative in the following years? In other words, the diamond trade, which is supposed to be an export-oriented industry, actually imported more diamonds between 2007 and 2014 than it exported. The cumulative impact of such a mismatch was $14.9 billion (Rs 89,400 crore) between 2007 and 2014.

dna discovered that the diamond industry had been re-exporting roughs.This is strange because India cuts, according to the GJEPC itself, 10 out of 11 stones in the world. If India is the cutting and polishing centre of the world, where was the need to re-export these roughs? By re-exporting them, was GJEPC not actually promoting other cutting and polishing centres in the world, thus putting India at a disadvantage?

Not surprisingly, most of De Beers’ Indian sightholders are having cutting and polishing centres in other countries as well. The total quantum of roughs re-exported during the past 10 years was $9.6 billion (Rs 57,600 crore).

A sightholder is a company on the Diamond Trading Company’s (DTC) list of authorised bulk purchasers of rough diamonds. DTC is controlled by the De Beers Group, the single-largest producer and purveyor of rough diamonds in the world, according to Wikipedia.

What this also means is that the GJEPC was destroying India’s labour. Not surprisingly, the diamond trade, which accounted for 8 lakh workers some eight years ago, is now estimated to be down to just 4 lakh.

Dna’s estimates of the total difference between what actual exports were and what the exports could have been over the past 10 years would amount to a staggering $37.9 billion (Rs.2.3 lakh crore). dna calculated these figures by assuming a 30% value added on cut and polished diamonds and a 7% value added and also adjusted for the diamonds that were re-exported.

In fact, in November itself, the ED had filed a charge-sheet before the Special Prevention of Money Laundering Act court in the over Rs 5,300-crore hawala scam allegedly involving a Surat-based trader.

The ED named eight traders from Mumbai, Surat and Ahmedabad. While the names are not yet known, market sources claim that some of them are De Beers sightholders and even present and past office-bearers of GJEPC.

Dna had pointed out even earlier that GJEPC had been promoting interests other than those of India. It had been working closely with De Beers, and some of its lobbying had actually hurt India’s gem and jewellery industry, and promoted those of De Beers instead.

Clearly, the government needs to move very quickly on reshaping policies to revive and strengthen this vital export industry.