September did not witness any major developments from the
Indian gem and jewelry industry. The prominent news making the rounds had to do
with legislation: the 2002 Prevention of Money-Laundering Act (PMLA), which is
now applicable to all members of the industry, and a revision in the goods and
services tax (GST) rates for import of rough diamonds.
The Indian government has taken steps to prevent illegal
money-laundering, which has been known to tarnish the image of the country’s
gem and jewelry trade. At the end of August, the government announced that the
PMLA would extend to all dealers in precious metals, precious stones and other
high-value goods with an annual turnover of at least INR 20 million, or
approximately $312,280. This means such companies will now need to maintain
records of all transactions of more than INR 1 million, or about $15,614, as
well as of cross-border wire transfers and transactions of immovable property
above specified amounts. If money-laundering is detected, the penalties include
imprisonment and fines.
While the move may help prevent illegal money-laundering,
there appear to be other repercussions. Jewelry sales have declined by around
50% since the government’s announcement, according to a report in financial
daily Business Standard last month, which attributed the plunge to consumers
deferring orders out of fear that their transactions would prompt action
against them under the PMLA. The legislation restricts cash transactions beyond
INR 50,000 without a Know Your Customer (KYC) declaration.
Meanwhile, India’s gem and jewelry exports are likely to
decline by a staggering 30% in fiscal 2017-18 due to unfavorable government
regulations and trade restrictions that the Gulf countries have imposed,
according to a separate Business Standard report. Signs of a decline in exports
were evident already in July, when the country’s gem and jewelry shipments fell
more than 26%, the report said. The main reasons for the slide were the GST
regime, and the 5% import duty that the United Arab Emirates instituted on
January 1.
If the GST isn’t revised for the industry, India could lose
diamond-processing business to competing countries, according to Dinesh
Navadia, president of the Surat Diamond Association (SDA). The trade gained
some respite in September, when the government announced that the GST Council
had equalized the rough-diamond import rates across all HS codes — meaning the
GST on industrial and unsorted diamonds would drop to 0.25%, from the earlier figure
of 3%. This move came after repeated efforts by the Gem & Jewellery Export
Promotion Council (GJEPC) to get the government to standardize the tax
structure across all categories of rough.
With the emergence of e-commerce, the gem and jewelry
industry in India has seen a lot of players start selling their goods online.
“In the online space, we are seeing a like-for-like growth
of over 125% in comparison to the previous year,” observed Kaushik Mukherjee,
CEO of jewelry web portal JewelSouk. “The online customer is looking for ‘value
for money’ deals. Although the number of transactions have increased by 125%
[year on year], the average bill value has remained a constant at about INR
11,500 this year (last year it was INR 11,250). The average discount on
merchandise, too, has increased...from 17% last year to 20% this year.” One
particular trend he noted seeing this year was that lesser-known jewelry brands
were showing good sales.
Article from the Rapaport Magazine - October 2017. To subscribe click here.