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India
By Zainab Morbiwala
The last month of 2016 failed to bring any cheer for the gem and jewelry industry in India. According to a majority of the industry players, the situation is expected to continue, especially since the demonetization move in the country has not been well accepted. Apart from affecting the spending power of the average person in the country, demonetization has severely impacted many labor-intensive industries in India, with diamond and jewelry being one of them.
The Surat Diamond Association (SDA) is planning to launch a campaign to educate small-to-medium size business owners of rough and polished diamonds on the importance of maintaining proper accounting and undertaking legal transactions through official channels for any deal undertaken. It is believed that these owners do not maintain books of their accounts and are dependent on “chopdawalas” and “angadias” — individuals who help with the trading of goods without any official documentation and who charge anywhere between 1 percent to 1.5 percent on diamond imports. This system generates much illegal trade, as fake bills are issued. However, according to these business owners, given the impact of demonetization with a shortage of cash and strict limits on withdrawals, this is their only option to conduct business. It is believed that following demonetization, many of the small and medium manufacturing businesses haven’t opened, as they usually pay their employees and daily wage earners in cash.
Speaking exclusively to Rapaport Magazine, Mehul Choksi, chairman, Gitanjali Group, explained, “The cost of manufacturing in small sizes, particularly stars below 2 points, will have an inflation of 7 percent. As a result, we can expect a rise in price for smaller goods.” On the effects of demonetization, he shared, “On the eve of demonetization, there was a robust sale of larger goods and gold jewelry, but the sales have drastically dipped now. My estimate is that in the month of December sales were down by almost 20 percent and the most affected here were traditional jewelers. Considering this is wedding season and also because gold prices are down, the drop in sales is not a good sign for the industry. In terms of diamonds, about 25 percent of diamond mining units and jewelers could be affected badly in the new business environment. But again, organized players will eventually continue to grow.” Some good news was seen in a plan unveiled by De Beers. The mining giant announced a $5 million expansion plan at its International Institute of Diamond Grading and Research (IIDGR) in Surat. The group further stated that via IIDGR it will launch its maiden education service to cover the entire diamond pipeline and support further growth in the Indian sector. This is expected to launch in the second quarter of 2017 out of Surat.
It isn’t surprising that with the pressure of low demand and the recent demonetization move, export figures for cut and polished diamonds are falling compared to the same period in 2015. According to statistics released by the Gem & Jewellery Export Promotion Council (GJEPC), exports of cut and polished diamonds stood at $1.18 billion in November 2016. This indicates a drop of 10 percent as compared to the $1.32 billion in November 2015. The hit was also seen in the export of gold jewelry, which showed a decline of a whopping 35 percent to $547.5 million during the same period as compared to $844.67 million in November 2015. The numbers declined even further as overall exports from the gem and jewelry sector during November 2016 stood at $2.47 billion, a decline of 20.4 percent over the $3.11 billion exported in November 2015. While the export figures showed a considerable decline in November 2016, the imports of rough tell a different story. According to the figures released, rough imports during November 2016 were at $1.19 billion in value compared to $624.9 million imported during November 2015. By volume, 8.55 million carats of rough were imported in November 2016 against 6.43 million carats during November 2015. However, taking into consideration the figures for the period between April through November 2016, exports of cut and polished diamonds were up 12.23 percent to $15.41 billion as compared to $13.73 billion during the same period in 2015. Similarly, exports of gold jewelry were up by 12.02 percent to $6.09 billion during April through November 2016, as compared to exports of $5.44 billion in the same period of 2015. While 2016 failed to bring any good news for the industry, there are hopes for a positive 2017. But again, experts believe that for the Indian economy to get back on track post demonetization pains, it would take nothing less than another six months. Meanwhile, it remains a wait-and-watch situation for the industry.Article from the Rapaport Magazine - January 2017. To subscribe click here.
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