What Happened
- The Indian government moved diamond-studded gold and silver jewellery to the "restricted" import category, requiring importers to obtain a prior licence from the Directorate General of Foreign Trade (DGFT) before importing these goods.
- The move targets cheap inflows primarily routed through Dubai, which has a zero-duty trade relationship with India under the UAE-India Comprehensive Economic Partnership Agreement (CEPA, 2022).
- The restriction follows a pattern of India tightening jewellery imports: plain silver jewellery had already been restricted until March 31, 2026; the new notification extends restrictions to diamond-studded gold and silver jewellery.
- The concern is that importers have been exploiting zero-duty or concessional-duty provisions under Free Trade Agreements (FTAs) to bring in jewellery — potentially misclassified or undervalued — thereby undercutting domestic manufacturers.
- The DGFT notification was issued under the Foreign Trade (Development & Regulation) Act, 1992 (FTDR Act), which gives the government authority to regulate imports and exports in the public interest.
Static Topic Bridges
Directorate General of Foreign Trade (DGFT) and India's Import Policy Framework
The DGFT is the apex body under the Ministry of Commerce and Industry responsible for formulating and implementing India's foreign trade policy, including the classification of goods as "Free," "Restricted," "Canalized," or "Prohibited" under the ITC (HS) Classification (Indian Trade Classification based on Harmonised System).
- DGFT was established under the Foreign Trade (Development & Regulation) Act, 1992. Its functions include issuing Importer Exporter Codes (IEC), import/export licenses, and advance authorisations.
- The ITC (HS) system classifies all tradeable goods under 21 sections, 99 chapters, and approximately 12,000+ product lines. Each product has an 8-digit HS code.
- Import categories under Indian FTP: (1) Free — no restriction; (2) Restricted — requires licence/DGFT approval; (3) Canalized — can only be imported through designated government agencies (e.g., STC, MMTC); (4) Prohibited — cannot be imported at all.
- Moving a good from "Free" to "Restricted" effectively acts as a non-tariff barrier (NTB), reducing import volumes without directly raising customs duties — a tool India uses to manage trade deficits without violating WTO tariff commitments.
- Foreign Trade Policy 2023-2028 (FTP 2023) replaced the earlier FTP 2015-2020 and focuses on increasing exports, promoting e-commerce exports, and simplifying procedures.
Connection to this news: The DGFT notification moving diamond-studded jewellery to "Restricted" is a non-tariff measure — a policy tool India uses increasingly as pure tariff increases can attract WTO challenges, whereas licensing requirements (if applied consistently) are harder to challenge.
Free Trade Agreements (FTAs) and Their Misuse: the "FTA Abuse" Problem
Free Trade Agreements (FTAs) grant concessional or zero-duty access to goods from partner countries. However, they create opportunities for trade diversion and misclassification — where goods from third countries are routed through an FTA partner (a practice called "tariff circumvention" or "FTA misuse") to take advantage of lower duties.
- India-UAE Comprehensive Economic Partnership Agreement (CEPA): signed February 18, 2022; in force from May 1, 2022. UAE became the first GCC country to sign an FTA with India.
- Under India-UAE CEPA, UAE exports to India in several categories get zero or reduced duty; the agreement covers goods worth over $26 billion annually.
- FTA misuse pattern for jewellery: Silver/gold is imported (as bullion or semi-finished goods) into UAE, minimally processed, classified as "UAE-origin" jewellery, then exported to India at zero/low duty under CEPA, bypassing the normal import duty on jewellery.
- India imposes a basic customs duty (BCD) of 15% on gold jewellery and similar rates on diamond-studded items from non-FTA countries.
- Rule of Origin (RoO) provisions in FTAs specify how much domestic value addition is required to claim FTA benefits; India has tightened RoO norms in recent FTAs (e.g., requiring 30-40% value addition) to prevent this type of circumvention.
- ASEAN FTA (in force 2010) faced similar problems: low-cost silver from non-ASEAN countries was processed in Thailand/Malaysia and exported to India as ASEAN-origin goods at zero duty.
Connection to this news: The Dubai routing specifically exploits the India-UAE CEPA's concessional duties. By restricting these imports, India is effectively tightening enforcement of Rule of Origin compliance — or bypassing the RoO issue entirely by requiring case-by-case DGFT approval.
India's Gems and Jewellery Industry: Economic Significance
The gems and jewellery sector is one of India's most significant export industries and also a major employer — approximately 4.64 million people work in the sector. It is a key contributor to India's merchandise export basket and has a global supply chain footprint.
- India's gems and jewellery exports: approximately $37.6 billion in 2022-23 (second only to engineering goods as India's largest merchandise export category).
- India is the world's largest diamond cutting and polishing hub, processing over 90% of the world's rough diamonds by volume.
- Surat (Gujarat) dominates diamond processing; Mumbai (Zaveri Bazaar) and Jaipur are key jewellery manufacturing centres.
- Domestic jewellery industry employs approximately 4.64 million (largely artisanal, small enterprises) and is classified as a Micro, Small and Medium Enterprise (MSME) sector priority.
- Gold imports are also a major driver of India's trade deficit: India imported approximately $46 billion worth of gold in 2022-23, making it the world's second-largest gold consumer after China.
- SEEPZ (Santacruz Electronics Export Processing Zone, Mumbai) and Gems and Jewellery Export Promotion Council (GJEPC) are the key institutional players.
Connection to this news: The import restriction is explicitly aimed at protecting domestic manufacturers from cheap foreign competition arriving through a low-duty route. It demonstrates the tension between trade liberalisation (through FTAs) and domestic industry protection — a recurring UPSC GS3 theme.
Non-Tariff Barriers (NTBs) and WTO Disciplines
Non-Tariff Barriers (NTBs) are trade policy measures other than customs duties that restrict imports. They include import licensing requirements, quotas, technical standards, sanitary and phytosanitary (SPS) measures, and local content requirements. WTO rules (particularly the Agreement on Import Licensing Procedures) discipline NTBs to prevent them from being used as disguised protectionism.
- WTO Agreement on Import Licensing Procedures: requires that import licensing be transparent, non-discriminatory, and not be used as a trade restriction in itself; countries must notify new licensing requirements to the WTO.
- WTO Agreement on Technical Barriers to Trade (TBT) and SPS Agreement: govern technical and safety-related NTBs.
- India has faced WTO disputes over NTBs: for example, US and EU have challenged India's import restrictions on poultry, solar cells, and ICT products.
- Under GATT Article XI, import prohibitions or restrictions (other than duties) are generally prohibited — with exceptions for balance of payments difficulties, national security, and environmental protection.
- India's use of licensing requirements as a NTB for laptops/tablets (announced August 2023) is a recent example that attracted WTO scrutiny before being modified.
Connection to this news: India's move to "Restricted" category for jewellery imports is a classic NTB — it raises the effective cost of importing (through administrative licensing burden) without touching the customs duty rate. Whether this is consistent with WTO commitments will depend on how the licensing is implemented in practice.
Key Facts & Data
- DGFT: established under Foreign Trade (Development & Regulation) Act, 1992; under Ministry of Commerce and Industry
- India-UAE CEPA: signed February 18, 2022; in force May 1, 2022 — first FTA with a GCC country
- Basic Customs Duty on gold jewellery: 15% (for non-FTA countries)
- India's gems and jewellery exports: ~$37.6 billion (2022-23); India processes >90% of world's rough diamonds
- Domestic industry employment: ~4.64 million people
- India's gold imports: ~$46 billion (2022-23); world's second-largest gold consumer
- Import categories (ITC-HS): Free / Restricted (licence required) / Canalized / Prohibited
- GJEPC: Gems and Jewellery Export Promotion Council — apex body for the sector
- WTO Agreement on Import Licensing Procedures: disciplines use of licensing as NTB
- Prior plain silver jewellery restriction: already in place until March 31, 2026 (DGFT Notification 34/2025)