Modi Effect: A positive wave runs through the gems and jewellery industry

narendramodiAche din aa gaye…the gems and jewellery industry echoes as the sector is hopeful of some significant changes and better days. Earlier jewellers had openly supported PM candidate Narendra Modi, now that he has won, India’s gems and jewellery sector is hopeful that ascent of Modi will bring in cheer back to the industry. 

Indian gems and jewellery industry was suffering due to policy hurdles introduced by the government in 2013. The 10 per cent export duty; 80:20 rule have hampered the business. There is a lot of positivity within the industry that makes the sector believe that the new government will fulfill the promises made to them before elections.

Before elections all the political parties assured for better tomorrow to the jewellers. The domestic gems and jewellery industry employs 40 lakh people, had a market size of `2,51,000 crore in 2013, with a potential to grow to `5,00,000-5,30,000 crore by 2018 (FICCI-AT Kearney Report 2013). To cash on the vote bank of the jewellers and others associated with the industry many electoral parties approached the trade bodies like India Bullion and Jewellers Association (IBJA) to offer their support to the industry.

The jewellery trade is dominated by Gujaratis have always favoured the government headed by Narendra Modi. Haresh Soni, Chairman of All India Gem & Jewellery Trade Federation shares, “He understands the problems we have been facing over the last twelve months. We are sure he will solve our issues.”

Impact on jewellery sector

The difficult regulatory environment imposed by the government has been directly hurting the consumer demand. These curbs have left jewellers grappling with tough supply conditions and tight demand. The jewellery sales have dipped by 20-30 per cent despite the steady decline in the price of 22-carat gold. Dealers and customers are postponing purchase due to election and the end of financial year.

India had imposed the curbs last year when overseas gold purchases – the country’s second most expensive import after oil – pushed its current account deficit to a record and undermined the rupee currency. With three duty hikes last year to a record 10% and onerous restrictions tying purchases to exports, official arrivals shrank almost 90 percent in the six months to November, helping China displace India as the world’s top gold buyer.

“The restrictions were a response to the situation and we accepted them as temporary,” said Nilesh Gupta, Chairman, Administrative Committee, IBJA, said. “But the CAD moderated and the measures should have been rolled back as they were hurting the industry and continue to do so.”

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 Dharmendra Jadia, a diamond trader 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.

Both the Nifty and the Sensex gained 5 per cent in just one hour of trade on the bourses, compared to the previous day’s close. The only concern for market players seemed to be that Arun Jaitley, widely seen to be the next Finance Minister, was trailing in Amritsar. The stock markets had been on a bull run in the past few days following the exit polls pointing to a clear majority for the BJP-led National Democratic Alliance (NDA), that looks poised to form a government at the Centre. BJP’s Prime Ministerial candidate and Gujarat Chief Minister Narendra Modi is widely seen as a pro-business politician, who rolled out the red carpet to several large business enterprises in the state.

RBI allows private agencies to import gold

Even before Narendra Modi sworn as the 16th Prime Minister of India, the positive wave already swept the gems and jewellery industry. 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.

“This is a welcome step as it is some sort of relaxation. Supplies will increase in another 8-10 days and premiums will certainly come down,” said Bachhraj Bamalwa, director with All India Gems and Jewellery Trade Federation. “Some gold that was routed through illegal channels will now be routed legally.”

Mohit Kamboj, President, IBJA said, “Post the announcement the premiums have gone down considerably and spiking rates of gold are also coming down. We expect the premiums to be completely erased in next few weeks.” Gold prices in Mumbai tumbled to hit a nine-month low of `28,100 per 10 grams as premiums crashed by more than half, a day after the announcement. Shares of leading jewellers, including Gitanjali Gems, Titan co and Tribhovandas Bhimji Zaveri, rose by up to 20% next day in response to the change in the norms and on expectations the new government could take more steps to improve gold supplies.

The decision to allow star trading and private jewellery exporters to import gold under the 80:20 scheme improved the supply prospects and brought down premium levels in the domestic market. Kamboj cheered NDA for such a positive movement and said, “I would like to congratulate NDA for their work and for reviving a business friendly atmosphere once again for the gems and jewellery industry. The golden days of the industry are going to be back.”

Entire industry rejoiced the RBI move and expected this move will revive the dooming gold business and shall curb the smuggling of gold as well. IBJA members also urged that 20:80 scheme should exist as it will encourage export of gold in the country. Kambij adds, “The 20:80 policy is not bad. The policy needs to be amended.” He sees gold demand getting better after July as gold prices are expected to fall further.

Diamond industry hails Modi as ‘defender’ of industry

With Modi Government at Centre, diamantaries feel that there could be a reversal in the downward trend in gems and jewellery market and a surge in demand. The diamond mining major De Beers also expects the demand for polished gems to increase by up to 4.5 per cent this year, mainly due to recovery in the US market as well as growth in China and India.

India accounts for 9 per cent of the world’s diamond jewellery demand. The demand for small as well as big diamonds has steadily increased since January 2014 and it may see a further boost in the second quarter. India’s diamond-processing hub, Surat, is gearing up to house a world-class diamond bourse that will not only offer a trading facility but bring all those interested in the business of the precious commodity under one roof.

Industry leaders said Surat is an important diamond cutting and polishing centre with more than 90 per cent of world’s diamonds cut and processed in the city. It is said that 14 out of 15 diamonds set in the diamond jewellery world-wide are manufactured in Surat. When the diamond bourse comes up in the next three years, even diamantaires having their operations world-wide will need to buy office space here to carry out smooth operations. In fact, diamantaries are spearheading the proposal of Surat Diamond Bourse (SDB) to PM Narendra Modi in New Delhi to seek support of central government for the new venture.

“There are clear indications from the Centre about their support to the proposed diamond bourse. Most of the diamond company owners have very cordial relations with Modi. In fact, Modi was the one who insisted on developing a parallel bourse in Surat during his meeting with the diamond community members in Mumbai last year,” said a DTC sightholder.