Has Jewellery Business’ Fortunes have turned around… find out

INDIAN JEWELLERY BUSINESS – AN OVERVIEW

Introduction:

The gems and jewellery industry is a sparkling, traditional and glamorous industry. It is one of the fastest-growing sectors in the Indian economy. It is highly export oriented and labour intensive, thus contributing greatly to the exchequer in terms of foreign exchange, and to employment.

Based on its potential for growth and value addition, the Government declared gems and jewellery sector as a focus area for export promotion. The Government has also undertaken various measures recently to promote investment and upgrade technology and skills to promote ‘Brand India’ in the international market.

“Gems and Jewellery sector, contributing around 7% to country’s GDP and 15% to India’s total merchandise export. It employs over 4.64 million people, which is expected to reach 8.23 million by 2022

And it is because of this tremendous growth that we bring to you a look in to what the jewellery business is, its business model and the challenges faced by Gems and Jewels Industry.

Market Overview and Trends :

Gems and Jewellery industry plays a vital role as it is one of the largest exporters and contribute a major chunk to the total foreign reserves of the country. Net export rose to US$ 29.07 billion in FY20. In FY21, net exports of gems & jewellery stood at US$ 11.62 billion. India’s import of gems and jewellery stood at US$ 24.41 billion in FY20. India imported rough diamonds worth US$ 13.02 billion in FY20; this accounted for 53.3% of the total gems and jewellery import.

“India’s gems and jewellery sector is one of the largest in the world, contributing 29% to the global jewellery consumption”

Share of Various Segments of Gems and Jewellery in Total Exports

  • India export of gems and jewellery is composed of a variety of items like cut and polished diamonds, gold and silver jewellery, gold medallions and coins, coloured gemstones, pearls and synthetic stones, and rough diamonds.
  • Cut and polished diamonds accounted for almost 52.4% of the total gems and jewellery export with India exporting 75% of the world’s polished diamonds. Gold jewellery accounted for the second highest share of nearly 33.8% Rough diamonds accounted for 4.7% of the total gems and jewellery export.
  • India’s overall gross export of gems and jewellery declined 5.8% to US$ 29 billion during FY20 compared to US$ 30.96 billion in FY19.

Growth Drivers of Gems and Jewellery Sector in India

  • As per the World Gold Council (WGC), India’s gold demand stood at 446.4 tonnes in 2020.
  • In the final quarter, Indians usually boost their purchases of gold ornaments for marriage celebrations, while sales of coins and bars for investment surge during a series of celebrations that culminates with Diwali, or the Festival of Lights that this year is being held in November.
  • It wasn’t just during last year’s festival season that Indian purchases of gold fell. After declining to a more than two decade-low of 446.4 tons in 2020, sales could rise by as much as 50% for all of 2021.

Key Investments and Developments

  • Adoption of Western Lifestyle:

The gems and jewellery sector is witnessing changes in consumer preferences due to adoption of western lifestyle. Consumers are demanding new designs and varieties in jewellery, and branded jewellers have managed to fulfil their changing demands better than the unorganised players.

“According to Department for Promotion of Industry and Internal Trade (DPIIT), Cumulative FDI inflows in diamond and gold ornaments in India stood at US$ 1,183.07 million between April 2000 and September 2020”.

  • Rise of Digital Modes: 

A recent Crisil study indicated that the proportion of gems and jewellery manufacturers – largely non-precious, stone-studded jewellery, imitation jewellery, and luxury fashion jewellery – embracing online selling platforms has more than quadrupled to 55 per cent in November from 13 percent before the pandemic.

  • Establishment of GMS Service Branches

According to recent amendment of Gold monetization scheme, the number of branches of Public Sector Banks has been increasing in all towns to be designated as GMS service branches, collaborating with reputed Jewellers to act as Collection and Mobilization Agents of gold under GMS.

  • Reduction of Customs Duty

Union budget for 2021-22 has reduced basic customs duty on precious metals like gold and silver from 12.5 percent to 7.5 percent.

Strategies Adopted by Gems and Jewellery Industry

Virtual ‘Buyer-Seller’ meetCompanies are indulging in expansion to more and more cities as well as expanding across the value chain.  Retailers are focusing on opening exclusive showrooms especially in tier I cities to attract the urban  customers.
Online selling by gems  and jewellery retailersThe growth of online jewellery is driven by increasing internet penetration rates, growth in high net worth individuals’ population and availability of low online jewellery prices.   Some companies have also tied up with E-commerce companies like Amazon India for selling their jewellery,  like Joyalukkas.
Buyback guarantee on gold jewelleryCompanies are also giving buy back option to customers on jewellery within certain days after the purchase  and based on certain terms and conditions.
Customised jewelleryCompanies have also started selling customised jewellery for customers who prefer to have their jewellery  altered as per their own preference, for example, Malabar Gold.
Virtual ‘Buyer-Seller’ meetThe Gem and Jewellery Export Promotion Council of India (GJEPC), the apex body for promotion of Gems and Jewellery Exports, organised the first virtual ‘Buyer and Seller’ meet for loose diamonds in September 2020. This meet gave buyers and exhibitors an opportunity to connect and talk business over the virtual platform.

Challenges faced by the Industry

The industry faces certain fundamental and regulatory challenges which limit achievement of its full potential. These challenges analysed in the study are:

  • Indigenous availability of raw material plays a crucial role in the growth of any industry. However, the Indian gems and jewellery industry is almost completely dependent on imported raw materials such as gold, diamond and other precious and semi-precious stones.
  • Like other industries, the gems and jewellery industry is also facing many challenges related to labour. These are mainly shortage of skilled labour, poor working conditions and pay.
  • The industry is highly affected by changing consumer tastes and preferences. In times of such rapid changes, it has to face the challenge head on and must be attentive to and receptive towards important trends, developments and new risks.
  • A stable currency is necessary for developing countries, for smooth economic development and foreign inflows. Hence, it is important for the gems and jewellery industry as well, particularly considering its dependence on imports and exports.
  • As per industry experts, consumer behaviour in India is a major factor for lower value addition as Indians prefer pure gold jewellery in which there is a limited scope for value addition due to less artistic work and innovation in designs.
  • Considering the industry is predominantly dependent on imports and contributes a large share in the county’s total imports, the government and RBI impose various restrictions on it, to reduce the current account deficit (CAD) and curtail domestic demand

Government Policies

Government rules and policy interventions play a vital role in the growth of the gems and jewellery industry. The Indian Government is taking every possible initiative to boost this industry. This section sets out some of the policy initiatives that can drive growth in the industry.

  1. Gold Monetization scheme:
  • The Gold Monetisation Scheme was launched in November 2015. This scheme enabled individuals, trusts and mutual funds to deposit gold with banks and earn interest on the same in return.
  • According to the State Bank of India’s (SBI) website, GMS is available in three tenures: Short Term Bank Deposit (STBD), Medium term Government Deposit (MTGD) and Long-term Government Deposit (LTGD). The minimum deposit of gold starts from 10 grams with no limit on the maximum deposit.
  • Under STBD, one can place gold deposits for 1 to 3 years, under MTGD, deposits can be placed for 5 to 7 years and under LTGD, the tenure is 12 to 15 years.

2. Development of Special Economic Zone:

  • The government plans 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.

3. Foreign Trade Policy (FTP):

With a view to promoting the gems and jewellery sector including handcrafted jewellery, the Government has also announced a number of measures in the Foreign Trade Policy (FTP) 2015-2022 to promote export of gems and jewellery products.

4. Foreign Direct Investment

The government allows 100% FDI in mining of gold, silver, diamonds and precious ores through the automatic route. These measures are expected to encourage entry of foreign jewellery brands, to boost the sector and encourage competition.

5. Mandatory Hallmarking scheme.

  • In December 2020, All India Gem and Jewellery Domestic Council (GJC) welcomed the decision to make hallmarking compulsory from 2021 in a phased manner; urged the government to examine the key concerns of the industry for smooth implementation of the initiative.
  • Jewellers with sales turnover below $54000 a year are excluded from the scheme, but can register voluntarily.
  • Mandatory hallmarking will, however, increase costs for single-store small retailers, as they will have to melt their unsold, non-hallmarked jewellery before the end of November or pay for that jewellery to be hallmarked.

The Way Forward

The significant areas that need immediate attention for the industry to achieve its full potential are presented below:

Dynamic Business model to suit consumer tastes and preferences.

Enabling labour related policies and programmes.

Enhanced Designs, product, quality & Standards.

Skill Development and Improved Working Conditions.

Better Credit Availability.

Conclusion

As the statistics suggest, this industry has a huge potential to contribute to India’s dream of becoming the manufacturing hub of the world. It is set to grow at a rapid pace, largely due to growing global demand, and increasing affluence and changing demographics in India. New and different kinds of jewellery and changing tastes are also attracting consumers for daily wear jewellery. Given its employment potential, contribution to exports, foreign exchange and GDP, the government would do well to focus on this industry too, to revive manufacturing in the country.

“The gem and jewellery industry is confident that ongoing 2021 is a transition year, helping the industry stabilise across both domestic and export markets and prepare for the coming growth phase”.

Leave a Reply

Your email address will not be published. Required fields are marked *