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India
By Zainab Morbiwala
The beginning of December saw the gem and jewelry industry of India dealing with the aftermath of two major events that occurred in November. One was the U.S. election and the other, the surprise move by Indian Prime Minister Narenda Modi in announcing the demonetization — stripping a currency unit of its status as legal tender — of the 500 rupee ($7.40) and 1,000 rupee ($14.80) notes. The government explained the measure was taken to cut down on corruption by eliminating “black money” or illegal cash transactions that can also be used avoid taxes. According to industry experts’ estimates, the resulting shortage of liquid cash in the hands of the average Indian consumer will affect the domestic gem and jewelry market for the following four months.
Overnight, the spending power of people who depend on a cash economy came to a grinding halt, as India still has a long way to go before it accepts the concept of plastic money. As Rajiv Jain from Sambhav Gems noted, “Purchasing jewelry comes last in the list of priorities and the liquidity crunch is sure to affect the industry in a huge way.” Sharing further on this in an exclusive interview with Rapaport Magazine, he said, “The sentiments across the board are poor. While exports remain unaffected, I see the industry in low spirits within the country.” Reiterating Jain’s sentiments, Praveenshankar Pandya, chairman of the Gem & Jewellery Export Promotion Council (GJEPC), also speaking exclusively with Rapaport Magazine, pointed out that the industry in India is sure to take a hit. But he expressed relief that this move of demonetization came during the holiday season and not before: “Diamond cutting and jewelry making is labor intensive, where we have thousands of workers from villages involved, especially in places like Surat. Had this happened prior to the holiday season, we would have faced issues in terms of payment to workers, as a majority of them do not hold bank accounts and are paid in cash. At present, the industry is facing a liquidity problem as we cannot draw money.” An industry member, on condition of anonymity, shared his views on the demonetization move affecting the industry saying, “The government of India should have planned this better. Most of the people in the country save money to buy jewelry. Even those who use their credit or debit cards prefer not using it for buying jewelry as there is a tax charged on it. It is only the big brands that accept cards without charging extra to their customers. The daily withdrawal limit is only 2,000 rupees (approximately $30) This affects not just the buying power of the customers but also affects us, the manufacturers, as labor in our industry is paid in cash more often than not. It is going to be a wait-and-watch situation, but the first half of 2017, for sure, is going to be difficult.”
Pandya sounded optimistic about demand picking up in the U.S. and in Hong Kong. According to him, 2017 would be good for exports. Within the country though, it would be six months before the markets would show signs of steadiness. He explained, “In between, we saw two good months but the domestic market is under pressure, which also includes fluctuations being seen in gold prices.” Sanjay Shah, director, Gold Star Diamond Pvt. Ltd, added, “The U.S. market is doing well, keeping in mind the approaching Christmas season, but the demand from the other markets has been slow. I anticipate this trend to be felt post-holiday season as well.” Concerning the domestic market, Shah sees a period of struggle ahead. Regarding his brand, he shared, “We had a positive year mainly because we have been associated with Sterling and the Ever Us program at Kay Jewelers. We have seen good demand in I2 quality, in .01 up, in all sizes.”
Where things were looking positive in the past couple of months, the industry is once again facing a threat of low demand. Local jewelry shops are going to be the most affected, as their clientele is someone who prefers paying cash. As Pandya summarizes, “The industry has lot of challenges and threats. We have to work together to create demand for jewelry. Another challenge we need to tackle is that of synthetic diamonds. Overcoming these twin issues will be the focus for 2017.”Article from the Rapaport Magazine - December 2016. To subscribe click here.
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