India’s Gem & Jewellery Industry to Double in Next Five Years

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Although the present scenario of India’s gem & jewellery industry may look slightly gloomy but its size is likely to double in the next five years on growing demand of bullion for investment and ornaments for household consumption and gifting purposes. A study titled “All that glitters is gold : India Jewellery Review 2013” conducted by the global consultancy firm A T Kearney, forecasts India’s gems and jewellery market to achieve the size of Rs 500,000 – 530,000 crore by 2018 from the level of 251,000 crore in 2013.
Industry body FICCI associated with its publication.
In 2012-13, the industry drove jewellery exporters to the tune of Rs 227,000 crore, outperforming textiles and apparels by a huge margin of 25%. The industry also drove value addition of more than Rs 99,000 crore which is comparable to several large industries such as apparel manufacturing.

The investment demand in the form of bars and coins could potentially reach Rs 180,000 – 190,000 crore by 2018 from the level of Rs 85,000 crore in 2011-12. This assumes that the current macroeconomic environment and industry ecosystem persists. The future growth in the domestic gems and jewellery market is thus expected to be impacted by the low-growth outlook for the Indian economy. It also assumes that the current import restrictions will be removed and there will not be any limiting effect of raw material supply, the study finds.

The industry plays a significant role in the economy through its contribution to employment generation, exports and value additions. However, it caters to two very distinct demand – consumption and investment – with very different needs and challenges.

Some of these challenges including high import dependence and limited domestic recycling, limited financing options for the industry and over regulated consumption industry and under regulated investment industry etc. can impact the industry’s performance and contribution to the economy if they are not addressed, it added.

Exports may decline in 2014

Contrary to the above report, India’s gold jewellery exports may decline as much as 50% this fiscal on year on year basis, Gitanjali Gems Chairman and Managing Director Mehul Choksi asserted recently. The decline many occur following reduced availability of the raw yellow metal owing to the excessive import duty imposed by the government lately.

Gold jewellery exports were Rs. 1,293 crore in 2012–13, according the Gems and Jewellery Export Promotion Council. Choksi warned that if raw material availability remains low, it will give rise to smuggling. During the festive season, industry’s sales fell about 50% from the previous year.

‘There are lesser stocks available in the market and the premium is as high as 8–10% in the domestic market. This will give rise to smuggling. Very little gold is available for exports’, Choksi said.

‘Exports have declined by 55% since the last 7 months. We are expecting an overall about 50% decline in gold jewellery exports this financial year’, Choksi told said reporters on the sidelines of a trade show.

‘There is a need for conducive government policies for the sector to perform well. If the gems and jewellery sector grows to its full potential, it can easily employ another 1 million people’, he added. The sector currently employs about 2.5 million people.

Indian gold demand shifting to West Asia

Choksi highlighted that Indian demand for gold jewellery is shifting to the Middle East due to competitive prices. ‘Middle east countries are taking advantage of the India situation as Indians are going to those countries to buy gold jewellery’, he added.

Gitanjali Export Corporation CEO Sanjeev Agarwal said local gold prices are high, even as prices overseas drop. In Dubai, gold is 21% cheaper than in India, making the city an attractive destination to buy the metal, he added. ‘There are reports that about half tonne of gold is coming into India from Dubai. The Middle Eastern region, along with China and Thailand, are also emerging as alternative manufacturing bases. Many big players have already shifted their bases to these locations to feed the export market’, he said.

All India Gems and Jewellery Trade Federation (GJF) Chairman Haresh Soni said NRIs are also buying from outside India. ‘The domestic market is affected by the lower availability of stocks. Even NRI demand is getting diverted to other countries like the neighbouring countries and Dubai’, he added.

But exporters here are betting on the demand during Christmas to help arrest the decline in jewellery exports. In the April-October period, exports rose only 3.5 per cent, against 6.5 per cent in April-September.

“We expect exports to the US and other markets would start improving, as data from those regions show consumer confidence has improved. Owing to the third round of quantitative easing in the US announced in mid-September, consumer spends are rising,” said Vipul Shah, chairman of the Gem and Jewellery export Promotion Council (GJEPC). Shah added so far, Christmas-related orders showed the trend of declining exports had been arrested.

A Capitaline analysis said, “Exports of gems and jewellery, which have been declining since six to eight months, are now expected to see a revival, considering the demand for diamonds ahead of the Christmas season in the US. However, the demand would not be very strong, due to slow economic recovery in that country and the debt crisis in Euro zone countries.”

“Within the export segment, players who hadn’t hedged their forward foreign exchange revenues and those with an increasing share of cover story high-margin jewellery exports have better prospects. Players focused on domestic demand would be boosted by the rise in demand for the ensuing marriage season,” it added.

A significant proportion of polished diamonds are exported to markets like the UAE, the US, Hong Kong and European countries. While gold jewellery is primarily exported to the UAE, the US, Singapore and Hong Kong, major export destinations for silver jewellery are the US, China, the UAE, Hong Kong and the UK. India imports gold and rough diamonds, along with other precious metals. Gold is bought from Switzerland, Australia, South Africa and the UAE, while rough diamonds are imported from Hong Kong, Belgium, Israel, the UAE, the UK and the US. Precious stones are procured from Thailand, Hong Kong, Zambia, Sri Lanka and Germany.

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