bullion watch

Stable low gold prices to drive volume growth for jewellers

The gems and jewellery sector is one the fastest-growing sectors in India, contributing 6-7 per cent of the country’s GDP. The domestic gems and jewellery sector is expected to be double in the next five years and growth will be driven by a healthy business environment aided by the government’s investor friendly policies.

The gems and jewellery sector in India is engaged in sourcing, manufacturing, and processing, which involves cutting, polishing and selling precious gemstones and metals such as diamonds, other precious stones, gold, silver and platinum. Gold jewellery is the most preferred form of jewellery in demand in India as it is considered auspicious to purchase gold on major occasions like festivals, marriage, birth etc. Also, gold occupies the second position among all investment instruments. India is the world’s largest consumer of gold, accounting for over 20 per cent of the global gold consumption.

India is the world’s largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies. Moreover, India exports 95 per cent of the world’s diamonds. The industry is projected to garner around $35 billion of revenue from exports by 2015. The domestic gems and jewellery industry is expected to be double in the next five years and the growth will be driven by a healthy business environment aided by the government’s investor friendly policies. India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour.

Export

Gems and jewellery exports fell 9.44 per cent to `17383.69 crore in February 2015 due to sluggish shipment of gold ornaments, medallion and coins as compared to `19195.47 crore in same month previous year. Of total, Gold jewellery exports fell  39.92 per cent to `2753.27 crore in February 2015 from `4582.59 crore in the year-ago month. Similarly, shipments of gold medallion and coins tumbled 99.85 per cent to `0.01 crore from `5.23 crore in February 2014. However, exports of coloured gems stones rose 8.36 per cent to `425.57 crore from `392.73 crore in the corresponding month previous year. Additionally, export of Silver Jewellery surged 30.26 per cent to `693.71 crore as compared to `532.54 crore in similar month last year. However, on quarter on quarter (Q-o-Q) basis, export of gems and jewellery continued to show significant growth. The export grew 5.49 per cent, 12.61 per cent and 16 per cent in December 2014, January 2015 and February 2015, respectively.

Import

Imports of gems and jewellery declined 17.94 per cent to `12606.71 crore as compared to `15362.51 crore on a sharp decline in import of Rough Diamonds and Cut & Polished Diamond due to government curbs. The import of Rough Diamonds declined 23.43 per cent in February

2015 to `6954.95 crore as compared to `9082.74 crore Y-o-Y, while total import of Cut & Polished Diamond shed 15.49 per cent to `2514.34 crore in February 2015 as compared to `2975.31 crore in same month previous year. Additionally, total import of other items of gems & jewellery dropped 14.59 per cent to `1299.63 crore in February 2015 as compared to `1521.68 crore in corresponding month previous year.

Investments in the sector

The sector is witnessing changes in consumer preferences, as the westernization of lifestyle is responsible for changes in the buying habits of the consumer. Consumers are demanding new designs and varieties in jewellery, and branded jewellers are able to fulfill their changing demands better than the local unorganised players. Increase in per capita income has led to an increase in sales of jewellery, as jewellery is a status symbol in India. Meanwhile, the cumulative foreign direct investment (FDI) inflows in diamond and gold ornaments in the period April 2000-January 2015 were $569.14 million, according to Department of Industrial Policy and Promotion (DIPP).

Some of the major investments planned in gems and jewellery sector

Leading retailer Kalyan Jewellers is planning to set up 22 outlets in FY16, 9 of them in the Gulf region; to foray into Chennai, Kolkata markets. To increase its reach, Kerala-based Kalyan Jewellers has firmed up plans to spend `750-800 crore to set up 22 new stores in the next fiscal, of which nine will be in the Gulf region. In addition to this, a top Indian jewellery retailer will invest $25 million in Prime Minister Narendra Modi’s ambitious Gujarat International Finance Tec-City project which aims to create the first global financial hub in India. Pure Gold Jewellers, which claims to be the only World Diamond Mark (WDM) certified company in the Gulf Cooperation Council (GCC) and India will invest in various projects of GIFT City. It has 125 stores across 12 countries.

PC Jeweller has partnered with US-based online jeweler Blue Nile to launch products that will be retailed through retail and e-commerce channels. The move will help the companies tap the huge potential in online jewellery market in India. The government is discussing a plan to set up a special zone with tax benefits for diamond import and trading in Mumbai, to try and develop the country’s financial capital as a competitor to Antwerp and Dubai, which are currently trading hubs for the precious stone. Suwarnsparsh Gems and Jewellery is planning its pan-India foray by opening 20 new outlets in cities like Delhi, Kolkata, Hyderabad, Chennai and Ludhiana during the next financial year. Expansion of these outlets would entail an investment of around `12-14 crore including the inventory in these stores and would be funded via a mix of debt and internal accruals.

Concern for the sector

India’s diamond manufacturers have decided to cut production by up to 30 per cent to avoid inventory buildup in a slowing market. After a dismal last quarter, the country’s diamond industry, which accounts for about 80 per cent of the world’s production of polished stones, is facing a gloomy start to the new fiscal, primarily due to a fall in demand for solitaires, or single large pieces of diamond. For the April 2014 to February 2015 period, import of rough diamonds has dropped by 11.52 per cent from the year-ago period to 1314.94 lakh carats. Even though prices of polished diamonds have dropped by 10-15 per cent in the last fiscal, there has not been much pick up in off take.

GJF seeks Centre’s support to promote gems and jewellery industry

The All India Gems and Jewellery Trade Federation (GJF), the national trade federation for the promotion and growth of trade in Gems and Jewellery (G&J) industry across India is hopeful that customs duty reduction on gold imports will happen soon as the government is well aware that higher duties will lead to smuggling which the trade wants to get rid of. With respect to ‘Make in India’ initiatives, GJF has urged the government to make the country a global hub by creating many domestic jewellery manufacturing parks where shared infrastructure facilities can reduce overheads and reduce costs to final customers. ‘If the gems and jewellery sector which contributes around 6 per cent to the GDP and 14 per cent of exports (and employs the 2nd largest number of people after the software industry) gets industry statues, then getting land for factory units in Government owned sites such as SEZs/ MIDC areas, etc. will become easier.

Govt tightens norms for gold jewellery to stop circular trading

The government has tightened value-addition and wastage norms for the export of gold jewellery. The new norms will help restrict round-tripping of gold and cut its import of the commodity into the country. Round-tripping refers to import of gold, followed by export, with minor value-addition, to avail of several benefits. It leads to greater import. Round-tripping of gold in the recent years accounted for around 150 tonnes annually; two years ago, it was as high as 200 tonnes. For plain jewellery articles, the wastage norm assumed has been cut from 3.5 to 2.5 per cent, while that for value-addition has been raised from three per cent to four per cent. This adds to the cost of exporting, making round-tripping unviable. Genuine jewellery exports, however, won’t be hit. In 2014-15, star trading and export houses are estimated to have imported about 400 tonnes of gold, with a part of it being exported. Some entities are said to have exported the gold with negligible value-addition.

Outlook

India is currently the leading diamond cutting and polishing hub of the world and also the largest consumer of polished diamonds behind the US and Japan. The gems and jewellery sector contributes nearly 55 per cent of the world’s net exports of cut and polished diamonds in value, 90 per cent in terms of pieces and 80 per cent in terms of carats. Urbanization and rapidly expanding middle class have triggered Indian consumerism, especially in the gems and jewelry sector. Every 11 of 12 diamonds sold around the globe are processed in India, irrespective of where these are mined. In terms of carat, India’s share in the diamond sector is about 80 per cent of the world market. Meanwhile, the government of India has declared the sector as a focus area for export promotion based on its potential for growth and value addition. The government has recently undertaken various measures to promote investments and to upgrade technology and skills to promote brand India in the international market.

Moreover, the growth of branded retail in India has subsequently led to the growth of organized retail in India. The market share of organized retail (constituted of retail and branded retail) has grown significantly in past few years. The improvement in availability along with the reintroduction of low cost gold metal loans and likely stabilisation of gold prices at lower levels is expected to drive volume growth for jewellers over short to medium term. The demand for jewellery is expected to be significantly supported by the recent positive developments in the industry.

Courtesy: Mint