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India Expects Growth

Sep 4, 2003 3:57 PM   By Martin Rapaport
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Sanjay Kothari, chairman of India’s Gem & Jewellery Export Promotion Council, discussed the state of India’s diamond industry with Martin Rapaport. The interview took place on April 4, 2003.

Martin Rapaport: How is the Indian market?

Sanjay Kothari: The polished market is slow but the Indian market is in strong hands and people are not selling at lower prices. The effect of the war as well as the Severe Acute Respiratory Syndrome (SARS) scare has put everything off. There has been very little activity for the last three weeks and people are apprehensive about the future. Usually, April and May are slow, with real activity starting after the Las Vegas show. Some activity for Europe starts after the Basel show, but this year the show was not so good — it wasn’t a disaster for India but it was sad because participants from Hong Kong, Vietnam, China, etc. were not allowed in, and that led to poor participation in the Zurich country-pavilion. There was a better turnout at Basel itself, though that turnout was only some 50 or 60 percent of the previous year.

MR: Why are rough prices so strong even though polished is relatively weak?

SK: Over the past few years, India has greatly expanded its diamond manufacturing from smaller sizes and lower qualities to larger sizes and better qualities. Everyone has increased production capacity a great deal — they have increased the workforce and introduced new automatic machinery. But the supply of rough has remained almost the same these last few years. So there are more buyers of rough and more sellers of polished.

This is where the Gem & Jewellery Export Promotion Council (GJEPC) and leaders of the industry have a role to play. We have to source more rough and promote the end product — either as loose diamonds or diamond jewelry. We have to work hard in these two areas to ensure the growth of the Indian industry.

MR: Is the Indian industry very seasonal? Does everything happen a few months before Christmas?

SK: Yes. That’s the way it is all around the world. But here, because of the domestic market, there is activity all year round. Of course, during the season things pick up.

MR: How important is the United States market to India?

SK: Very important. If you look at our export figures over the years, you’ll see that 30 to 35 percent of our loose diamond exports and 60 percent of our jewelry exports go directly to the U.S. In total, about 40 percent of our exports go directly to the U.S. Furthermore, between 50 and 55 percent of the world’s jewelry is sold in the U.S., so even if we export diamonds to Hong Kong and China, the ultimate client is the U.S., because that is where the jewelry is sold.

MR: What is your forecast for this year’s Christmas season?

SK: I think it will be good for India. While the SARS scare may limit production and demand in Hong Kong and China, India is a strong alternate market. The Indian jewelry industry has been growing, so the outlook here is good. In loose diamonds, the reality is that India hasn’t any competition from Belgium, Israel or even China. We are way ahead if you look at our net export figures. There is room for growth and consolidation of India’s loose diamond sector. The big growth will come in jewelry. There is a huge gap between India’s contribution to the world jewelry market and the total offtake. I’m optimistic.

MR: Are you afraid that the U.S. market may be weak this Christmas because of the war or because of the state of the economy?

SK: I don’t think U.S. demand for India’s jewelry will decrease. We are replacing some of the other producing countries. Even if U.S. demand does decrease a little, Indians have started exporting to other markets. We are expanding marketing avenues in the U.K. and other European countries. I know this from the profile of Indian participation in this year’s Basel fair. There were 50 important jewelry exhibitors this year compared to 35 last year. India’s domestic market is also pretty strong. So I’m not too worried about sales. What bothers me is the supply of rough and the consolidation of business in fewer hands. That is worrisome.

MR: What are the Indian industry’s goals for the future?

SK: You’re probably aware that compared to last year’s exports of $7.5 billion, our exports this year stand at $9 billion. So there has been a 20 percent growth even with a slow global economy. I hope that by 2010, if not before, we will be able to reach a target of $16 billion. Jewelry is an area where we can grow a great deal.

MR: What are the challenges that India faces?

SK: As I have said, the sourcing of rough is our biggest problem. De Beers Supplier Of Choice is a good program as far as the marketing of diamonds is concerned. They have made people more aware of diamonds and diamond jewelry. They and their sightholders are doing a lot of work in promoting the product. This is a good thing. But as I said, the worrisome thing is that the rough diamonds are going into only a few hands. After paying the higher premiums for Diamond Trading Company (DTC) rough, nonsightholders may not be able to survive. So I see many changes in the industry, with a lot of consolidation and many joint ventures. People will have to develop their own niche to survive in the market. They will have to change the way they have traditionally done business — it already has been happening these last two years. There will be major changes in five years’ time. Some people will go out of business if they don’t change. But Indians are good at adapting to new things, and I am sure they will transform their businesses.

The sourcing of rough will be a big challenge for India’s diamond industry. The Council has been working hard to get direct supplies of rough for India. The government has been very supportive with policies so that India can grow into a great trading center now that it has attained the status of the largest manufacturing center. We are making efforts to obtain additional rough diamonds from sources other than De Beers, Argyle and BHP. A delegation went to Ghana and was able to source a little rough. We are planning to go to Angola and are continuing efforts with Russia. The rough market in Antwerp is very strong. So the sourcing of rough is our greatest difficulty.

MR: Does India have a special relationship with Russia?

SK: Yes, we have been trying very hard through the Indian government to obtain rough diamonds from Russia. Hopefully, something will come of this. There are a lot of changes in Russia. The rough license holders there are looking for additional avenues to sell their rough. So I think there is a chance of getting a direct supply of rough from Russia.

MR: How is the financial situation in India? Do companies have enough money?

SK: Indian diamond companies are financially strong. They are giving long credits because they want to capture the market and sell more goods. The banks have been financing individual companies. This is a bit worrisome given that interest rates in the U.S. are just 2 to 2 1/2 percent and zero in Japan. I don’t understand why buyers need long credit from India. So I think we should be cautious about this.

MR: What has happened to the Bharat Diamond Bourse?

SK: Work on the Bharat Diamond Bourse has been held up for some five or seven years for a variety of reasons — it was supposed to be completed in 1996 or 1997. But a new committee is working very hard on it. I am sure now that within two and a half years or so we should all be moving in.

MR: What is the role of the Council?

SK: The Council acts as a liaison between the government and the industry in matters of policy and procedure. The government has been very cooperative in allowing us to make changes that promote growth. I believe the main role of the Council today is to source rough and promote our product. We have to see that more avenues are opened not only for the sourcing of rough, but for sales of the product as well. We have to open markets in additional countries. There is an overdependence on the U.S. — though the U.S. does have the capacity to buy more and Indian products haven’t yet saturated the U.S. market. The Council is encouraging participation in trade shows in other countries to open up additional markets.

The Council also makes presentations highlighting India’s strengths and potential wherever the opportunity presents itself. The Council also promotes the Indian International Jewellery Show (IIJS) that is the second-largest show in this part of the world after Hong Kong. We want to see it grow and be as important as Hong Kong, Vegas and Basel. Though that appears a way off, the potential exists. Last year we had 300 booths and 220 participants. This year, though, we are about four months away from the show, and we have 480 booths booked from 350 participating companies. About 30 international companies are participating as exhibitors this year. They want to show their products to Indian wholesalers and retailers who visit the show. With the World Trade Organization (WTO) agreements coming into play, India will be opening up for overseas manufacturers seeking to sell their jewelry or loose colored stones in India. I think the IIJS will be a major event as we have been conducting road shows to get retailers all over the country to attend the show. We are also going to send delegations to neighboring countries, including Nepal, Bangladesh and Thailand, encouraging them to visit. We want to develop India as a primary one-stop source for all diamonds, gems and jewelry.

MR: How important is India’s domestic diamond and jewelry industry?

SK: There are few figures available for India’s domestic consumption, but gold imports into India are in the vicinity of 750 to 800 tons every year. Obviously, there is a big market for gold jewelry in India. The market for diamond jewelry has started growing over the last few years, thanks to the efforts of De Beers. Today, even platinum jewelry is being sold in India. But Indians have an affinity for gold and it will take a few years for diamond and platinum jewelry demand to take off.

MR: What has been the impact of the war in Iraq on the diamond

industry?

SK: We have felt the pinch of the war these past few weeks and were afraid that it might go on for two and a half months or so. It is good from both a humanitarian and a business perspective that the war has ended earlier than expected. Business is slow now, but is expected to improve as it did after the unfortunate 9/11 attack, when business picked up in December and January and India sold an all-time high of our products. The market also picked up after the Gulf war of 1991. Markets usually pick up after a war. Let’s see if that happens again this time.

MR: What type of diamonds does India specialize in?

SK: India has always specialized in smaller sizes and inexpensive qualities. In the last three years, our share of the world market has grown in terms of value. We now represent about 60 percent of the world market by value, up from 50 percent last year. In carat volume, we represent 82 percent of the world market and 92 percent in terms of pieces. Over the last three years, Indian manufacturers have greatly expanded production into larger sizes and better qualities. Huge factories now manufacture these goods. There are now also two or three international laboratories offering certification services in India for larger stones. They have been getting good business. So the 25-points-and-above category has been entered into in a big way and people are also getting into the certification system for larger diamonds.

MR: Do you see the Indian market for better-quality stones moving in the next few years?

SK: I am sure it will grow. The expertise required to generate the better yield and cut for these goods is rapidly developing here. For example, firms are even manufacturing a great deal of “hearts and arrows” today — I know of one company that specializes in manufacturing only these goods.

MR: What is India doing to develop its marketing, design and merchandising expertise?

SK: For the last 40 or 50 years, our jewelry industry has been catering mainly to the domestic market and to Indians abroad. But in the last ten years or so, we have developed jewelry for the Western jewelry markets as well, and we are improving this area every day. If you look at our jewelry in the U.S. market, you will see the improvement everywhere — the delivery time, the finish, the stone-setting. But we are still lacking in design. In view of this, we decided that apart from conducting short-term courses, we will open an institute in Mumbai to offer comprehensive jewelry design, manufacturing and marketing courses.

The institute is a $4 million project that will open this June. The teaching faculty will have world-recognized credentials, with experts from Germany and Italy. Groups of 40 to 50 students will take a full three-year program that will include courses in diamond assortment, basic jewelry design, manufacturing and the marketing of jewelry. There will also be short-term modular courses. India will organize and train a specialized workforce that will create new jewelry production and marketing opportunities and add value to our industry.

MR: Why is India so successful? What’s your secret?

SK: Apart from the inexpensive labor, the large workforce and the entrepreneurship, the marketing network has been responsible for India’s success. There are some 2,500 Indian offices abroad — not only in Antwerp, New York, Los Angeles and Hong Kong, which are the major cities, but also in the smaller towns of the U.S. and Europe. The Indians are everywhere. That has helped us grow.

MR: What message do you have for the Indian diamond industry?

SK: Be cautious. We have attained the number one status as far as the diamond industry is concerned and now we have to hold on to it. Diversify into jewelry. There is a huge opportunity for us to add value and increase employment.

MR: What message do you have for the U.S. retailers, your customers?

SK: India is now a one-stop shopping experience. India can offer you everything from the lowest to the highest sizes, shapes and qualities. We can offer you a great variety of jewelry as well. We manufacture not only the large, chunky jewelry that is sold in the Indian market and to Indians abroad, but alsothe jewelry that is sold in western markets — from high- to low-end. Wal-Mart is already here, but there is also scope to source for Tiffany. Anyone who wants to source high-end jewelry should visit and see for themselves the great developments that have taken place, not only from the manufacturing point of view, but from the professional way everything is done. You’ll be happy with what you see.
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Tags: Angola, Argyle, Banks, Belgium, China, De Beers, DTC, Economy, Government, Hong Kong, India, Israel, Japan, Jewelry, Laboratories, Manufacturing, Production, Russia, Sightholders, Tiffany, Trade Shows, United States
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