India, the world's largest diamond cutting and polishing centre, exported gems and jewellery worth $9.1 billion in the past year ended March 31, up 21 per cent from the previous year, a leading trade body said on Thursday.

Exports of cut and polished diamonds rose 19 per cent to $7.11 billion, while overseas sales of gold jewellery jumped nearly 30 per cent to $1.5 billion, it said.

"A favourable government policy and good overseas demand helped us accelerate exports of diamonds and gold jewellery," Sanjay Kothari, chairman of the Gem and Jewellery Export Promotion Council, told a news conference.

India abolished its import duty and licensing system for rough diamonds in March 2002.

Nearly 40 per cent of its gem and jewellery exports go to the United States, which buys half the world's jewellery. India's other major markets are Hong Kong and Belgium.

The sector, which employs nearly three million people, aims to increase exports of gems and jewellery to $16 billion by 2010, Kothari said.

But the US-led war against Iraq was likely to dent Indian exports this year, he said, although he did not give any figure.

"The business has been affected. Demand from all across the world has been sluggish," Kothari said.

"But we have a huge potential in the world jewellery market, while our diamond exports have almost reached saturation point."

India has a 60 per cent share by value of the global diamond market, but only about six per cent of the jewellery market, he said.

SARS, Iraq war to impact export in Q1

Exports in the first quarter of the current fiscal, however, will be adversely affected as a fallout of Severe Acute Respiratory Syndrome in the Asia-Pacific region and the Iraq war.

"Business has been affected and the market has also slowed down. People are apprehensive and decisions are delayed with sluggish demand", Gem and Jewellery Export Promotion Council chairman Sanjay Kothari told reporeters in Mumbai on Thursday.

Asked about the impact on exports in the immediate future, he said business would be dull in the April-May period and first quarter results would also be affected.

Additional inputs: PTI