Review gems & jewellery sops to check round tripping: CAG

Government auditor CAG on Friday asked the government to review export incentives to gems and jewellery sector to safeguard revenues and prevent round tripping. The Comptroller and Auditor General (CAG) also asked the Department of Commerce to undertake an outcome analysis of the important schemes implemented to boost the G&J sector from an economic, trading and revenue perspective. 

All inverted duty structures, transaction costs, related party transactions, re-export transactions, facilitation measures need to be carefully reviewed before designing an effective promotional scheme, it said. 

In its performance audit report tabled in Parliament, CAG asked the Department of Commerce to review "export incentives allowed on G&J exports, product category and country wise, considering the volume and value of re-imports involved, to safeguard the interest of revenue and to prevent round tripping". 

Further, it asked the Central Board of Excise and Customs (CBEC) to consider rationalising the duty structure so that Foreign Exchange Earning could at least be at par with duty foregone under the Foreign Trade Policy (FTP). The G&J industry contributes 15 per cent to the export basket. The major product categories of this industry are gold and diamond jewellery. India's diamond manufacturing sector employs about 10 lakh people across the country. The CAG report on customs on gold, precious metals and jewellery points at its performance audit has a revenue implication of Rs 1,003.37 crore in addition to systemic issues worth Rs 19,522.67 crore and internal control matters which could not be quantified.

The import of gold, jewellery and related items increased from Rs 3.50 lakh crore in 2010-11 to Rs 3.81 lakh crore in 2014-15. Export of similar goods also increased from Rs 1.98 lakh crore in 2010-11 to Rs 2.53 lakh crore in 2014-15.

"The export growth in 2014-15 was much below the rate of 25 per cent envisaged in the Department of Commerce (DoC) strategy, affecting employment generation and other economic indicators," the report said. On an average 64 per cent of imported gold jewellery was from Switzerland, UAE and Hong Kong out of the 120 odd source countries. However, the importing countries were not being exported to, except in case of UAE and Hong Kong. Similarly, 63 per cent exports of jewellery were to UAE and Hong Kong. CAG further said that no analysis of incremental changes in the transaction cost associated with the sector was measured by DoC. The change in gold price, import regulation, export promotion schemes did not have a material impact on the gold trade. 

"The G&J trade related financial outflow continued unabated," the report said. It also pulled up the DoC saying that FTP 2015-20 did not make any defining provision for the G&J sector despite withdrawal of 20:80 Scheme in 2014 and climb down from target.  

CAG further said gaps in the valuation database management and Customs electronic data application allowed gradual increase in trade mis-invoicing over the period leading to foreignexchange/capital outflow.