2014 ends on a positive note
‘All’s well that ends well’, echoed jewellers as 2014 concludes. Though it was not an extra ordinary year for the gems and jewellery industry but as Government scrapped the 80:20 scheme in November-end, jewellers rejoiced the move. The new development raised the hopes of traders for introducing favourable policies in 2015 for the gems and jewellery sector.
The import restrictions imposed on the gems and jewellery sector in 2013 led to a severe inventory crunch in the industry. The supply crunch helped drive Indian gold premiums to a record high of $160 an ounce over London prices in early December, versus about $1.30 to $1.50 an ounce in Singapore. Indians were smuggling in more bullion than ever as buyers seek alternative sources of the metal, however as 2014 approached there was a positive wave running through the market as elections were approaching.
Though the new Government was unable to bring in significant changes in the sector, they were able to match with expectations of the industry by scrapping the restrictive 80:20 scheme and by not raising the import duty on gold any further. The Reserve Bank of India (RBI), in a surprise move, scrapped the 80:20 scheme on November 28. Introduced last year, the scheme prescribed any entity importing gold to re-export 20 per cent of it in value-added form.
The easing of gold import norms will improve the supply through official channels. Post the announcement, WGC said that such a move will benefit the genuine exporters and manufacturers of gold jewellery. Welcoming the move, WGC India Managing Director Somasundaram PR said, “The timing of this development though surprising, will definitely boost confidence in general, and in the jewellery industry, in particular.” SK Jindal of Jindal group also welcomed the move stating that the parallel market trading will be reduced now. The efficiency of the trade will increase, operational cost will decrease and in the end, customers will get benefited. This move has raised the hopes of traders that in coming year there is a scope of customs duty on gold imports to come at 2 per cent.
Slowdown in first half
The first half of 2014 was slow for the gems and jewellery industry. The interim budget in the beginning of the year was a big disappointment for the sector as it sidelined the gems and jewellery industry. In the interim budget presented on February 17, many had expected P Chidambaram, Former Finance Minister to announce some relief, but it was not to be. The difficult regulatory environment imposed by the government had been directly hurting the consumer demand and due to elections dealers and customers had been postponing the purchase.
Anil Talwar of Talwarsons, 7th generation in the jewellery industry blames the psyche of Government that is affecting the trade. He says, “The gems and jewellery industry is negatively blamed for the mounting current account deficit (CAD). Exports is the main reason not only in jewellery but also in other sectors but why are only jewellers targeted.” He believes that stringent policies are to be blamed for the current scenario. “Government needs to ban the selling of primary gold in the country. The core of the problems has to be taken off,” said Talwar, member of Federation of Indian Chambers of Commerce and Industry.
Elections also impacted the sales on Akshaya Tritya, country’s biggest bullion buying festival. Not only sales were lacklustre but also the exchange-traded fund (ETF) counter too was the lowest in the last five years. However, as Narendra Modi was elected as the Prime Minister of the country, a positive wave ran through the gems and jewellery sector. The industry feels let down by the outgoing government believes that Modi will correct the earlier wrongs. “Mr. Modi has a clear thought process and encourages positive solutions to issues,” said Shailesh Daga of Palak Jewellers in the heart of Zaveri Bazar. On May 16th, when election results were declared, the Sensex crossed 25000 points after the NDA looked poised to form a stable government at the Centre.
The Reserve Bank of India (RBI) on May 21 erased gold import norms by allowing select trading houses, in addition to already permitted banks, to procure the precious metal to boost exports. The RBI eased tough gold import rules by allowing seven more private agencies to ship the precious metal, a move that industry officials say could augment supplies and reduce premiums in the peak wedding season. As a result, more than 20 entities, including state-run banks, private banks and agencies will now be allowed to import the metal.
Highlights of Budget 2014 for gems and jewellery industry
Finance Minister Arun Jaitley announced the much awaited Budget 2014 on July 10, 2014. Despite of regular meetings with ruling government before budget, the government ignored their plea for a cut in import duty on gold that has been creating havoc in the industry. The difference between domestic gold price and international price is 10-12 per cent high due to 10 per cent import duty.
The measures announced for the sector includes full exemption from basic customs duty is being granted to pre-forms of precious and semi-precious stones, basic customs duty on half-cut or broken diamonds is being increased from nil to 2.5 per cent. There is also a basic customs duty on cut and polished diamonds including lab-grown diamonds and coloured gemstones is being increased from 2 per cent to 2.5 per cent.
T.S. Kalyanaraman, Chairman & Managing Director of Kalyan Jewellers says budget is a roadmap drawn by the Government. “If the government walks the talk, it will see an improvement in the overall economy, which will mean more spending power to the consumer. This will definitely have positive impact for the Jewellery business. However we are disappointed that there has not been any relief in the import duties,” said Kalyanaraman.
Sachin Jain, President, Forevermark India, said, “The India market is looking much more positive compared to last year as sentiments have improved with the new government coming in. We have set a target to grow our India revenues by 60 per cent in the next one year.” Budget 2014 was expected to bring a positive wave in the gems and jewellery industry; however, it turned out to be a disappointment as it didn’t had much for the industry. Jain shares, “There was nothing such dramatic from budget perspective. But with a stable government, rupee and dollar there is a better momentum in the market. The year ahead looks positive from trade perspective.”
Bidding a Farewell to Gold Saving Schemes
Gold saving schemes have been a major source of working capital for jewellers, but recently announced new Companies Act and allied rules forced jewellers to suspend the schemes. Jewellers have been closing down schemes that accept money for over a year. A large number of jewellers have already stopped their deposit schemes leaving investors with the option to withdraw their money or purchase jewellery. ‘Golden Harvest’ by Tanishq, ‘Kalpavruksha Plan-Super’ by Tribhovandas Bhimji Zaveri Ltd, ‘Gold and Diamond scheme’ by Gitanjali Group and ‘Jewels for Less’ by PC Jeweller Ltd are some of the gold schemes.
Neither the RBI nor the SEBI was interested in regulating deposits collected by jewellers. Now, new Rules under the Companies Act 2013, are forcing corporate jewellers to stop such schemes under Rule 3(6) of Companies (Acceptance of Deposits) Rules, 2014, no company can accept deposit, which carries a rate of interest more than what has been prescribed by Reserve Bank of India (RBI) for deposit accepting non-banking financial companies (NBFCs). In other words, jewellers’ gold savings schemes needs to be on par with public-deposit schemes. However, many jewellers mull re-launch of gold purchase schemes in compliance with the provisions of the Companies Act, 2013.
Diwali, Dhanteras registers good sales
Buoyant sentiment, attractive prices led to surge in jewellery buying during Dhanteras and Diwali. Jewellery shops across the nation got good footfalls during the festive season, with a 15-20 per cent increase in purchase compared to last year. Deepak Tulsiani, Co-director of Dwarkadas Chadumal Jewellers, renowned jeweller from Zaveri Bazar said, “Although the sale of gold jewellery was higher by 20% compared to last year because the gold rate was less by 15% compared to last year plus the wedding season is also coming up so it gives a great boost to the sales.”
Suvankar Sen, Executive Director of Kolkata-based Senco Gold told that demand at his stores picked up by 5-10 per cent by grammage. “We are marginally better by volumes in terms of Dhanteras 2013, but let’s not forget that last year’s occasion was relatively tepid than the preceding one,” he told Economic Times. A stable government at the Centre and easing of inflationary pressure were accounted for good sales this year, some jewellers notified. The outlook continues to be positive as they predict the market to improve. “Petrol and diesel prices have come down and headline inflation declined to a five-year low of 2.38 per cent in September. This lifted the mood among consumers. We are also seeing a lot of rural demand,” said Haresh Soni, chairman of the All India Gem & Jewellery Trade Federation (GJF).
Tulsiani notifies that with the new government and new policies in place, customers had expected a fall in gold prices. However, there hasn’t been much difference in the rates and hence the sales carry on as usual. Diamond trade had also done well during this period. According to the industry expert, the domestic market accounted for 20 per cent of overall demand in September and October while the rest 80 per cent has been sold to the world market. However, the surging demand is expected to be short-lived as prices of polished diamond have dropped 3-4 per cent even as the prices of rough diamond, which are imported to be cut and polished in India, have gone up.
Ashok Gajera, Managing Director at Laxmi Diamond, said that if polished prices fall further, then the next quarter will not be profitable for the trade. The US, our major client, is buying small and mediumsized diamonds. We are hoping that they will look at bigger diamonds in November,” Gajera said to Economic Times. Sales of solitaires have also grown at an estimated 12-13 per cent in India in the first seven months of the fiscal year. “There is a good demand for solitaires in India. Youngsters who are getting married are preferring solitaires on their wedding rings,” Tanishq CEO CK Venkataraman told Economic Times.
Demand is increasing in the country mainly because people want to own diamonds, said Jignesh Mehta, managing director of Divine Solitaires. “In the past four years, solitaire prices have appreciated 70%. So, there is an investment demand as well,” said Mehta.
Government eases curbs on gold imports, scraps 80:20 scheme
While entire gems and jewellery market was flummoxed about more gold import curbs to be imposed, Government surprised the sector with the removal of restrictive 80:20 scheme and by not raising the import duty on gold any further. While most of the traders welcomed the move few were still uncertain. They are still expecting further notifications on the circular released by the Government on November 28. Those who expect further clarification through subsequent circulars, mention that government may not open up the trade completely and may put other measures like quota system for gold imports. Lastly, the whole idea to impose 80:20 measure was to cut the yearly gold imports and in turn decrease the CAD level. Now that CAD is manageable, the government has removed the 80:20 in anticipation of helping the industry and decrease the parallel trade. But as customs duty for gold imports is still at 10 per cent parallel trade may not die-down yet.
While gold, silver, platinum and diamonds have performed average, the solitaire market has witnessed growth in 2014. The demand for solitaires is increasing more in northern and western India though it is also picking up in south India, where consumers mainly prefer gold and platinum jewellery. Gujarat, Maharashtra, Delhi, Punjab and Haryana are the major markets for solitaires, said Ramesh Kalyanaraman, executive director of Kalyan Jewellers, which has launched solitaires under a new brand Sinor. “Three to four years ago, solitaire sales in south India contributed 4% to our turnover. But now it has gone up to 10%, which shows that even south Indians have developed a penchant for solitaires.”
Recently appointed President Suresh Jain of India Bullion and Jewellers Association from Mumbai is determined to improvise the bullion industry for healthy business environment. He said, “The existing stringent norms have hindered the growth of gems and jewellery industry tremendously. As a newly appointed President of the association, the two-most important tasks include problem solving (seeking actions against existing policies and norms) and industry representation that will have long-lasting impact on bullion industry.”
RK Sharma, executive director and chief operating officer of Delhi-based PC Jewellers, said solitaires are also being bought as an investment product. “People are buying more this year as prices have fallen and they can be kept in safe custody at home, unlike gold,” he said. While the domestic demand for diamond grew, exports of cut and polished diamond fell between April and September, compared to the year-ago period. The gems and jewellery industry attributes to the wealth of the country. Talwar says, “Government needs to understand that gems and jewellery industry is the biggest employer of the country. The policy makers also need to think from a social angle before implementing unfair policies on the industry.”
Neerav Mehta of Mehta Jewels from Mumbai also felt 2014 was an ‘Okay’ year for him as well as for the gems and jewellery industry. He says, “Overall the year was full of ups and downs as duty structure was the major concern for the industry. There had been a shortage of gold in the industry which has led to slump in the gold business. December is also lull period as there is not much demand in this season. However, I expect next year to be positive.”
Currently the gems and jewellery sector is in the correction phase. Jayantilal Challani, President of The Madras Jewellers & Diamond Merchants Association said, “2014 had been an okay year for the gems and jewellery industry except for the 80:20 scheme banned in the year-end, which has raised the hopes of the traders.” The expectations have gone up from the new Government. “The new Government is just 8 months old and there is a lot more to do for restoring the market stability.” Reaffirming with Challani, Talwar adds, “New Government doesn’t have the magic band, the mindset of Government remains the same. The change would come only after the correction mode is complete.”
2015 is going to be much more eased out as traders expect the policies to stable for the gems and jewellery industry. “By March 2015, things are going to be normal just like before. The market will stabilize slowly and gradually as policy amendments takes time,” said Challani. The industry expects the change to come soon.
–Rika Aash Pathak