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India's Diwali Honeymoon


Jul 25, 2014 8:25 AM   By Avi Krawitz
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RAPAPORT... India’s diamond and jewelry trade has high expectations that the new government of Narendra Modi will enable a more favorable business environment. As a result, amid the low level of activity at the India International Jewellery Show (IIJS) that took place this past week, there was also a sense of optimism that conditions will improve. The government has been granted a honeymoon period to settle in while the trade is hopeful that the upcoming Diwali season will signal improved consumer confidence and jewelry sales.

Therefore, sentiment was far better at IIJS this year than it was a year ago, despite the weak trading. Since the May national election, local stock markets have rallied with the Nifty – the National Stock Exchange’s benchmark index – hitting record highs this week, while the rupee has stabilized at around 60 to the dollar. Modi may well measure his immediate success in office on his ability to attract foreign investors to be interested in India again and by the stability of the rupee in light of the currency volatility last year.

For the industry too, a stronger and stable rupee would help facilitate growth, particularly for small-to-medium diamond manufacturers who sell to the local market in the local currency. Significantly, with bank credit provided in rupee terms, a stable rupee enables better liquidity for manufacturers who last year lost 20 percent rough purchasing power on the currency conversion alone when the rupee depreciated – given that they receive financing in rupees and buy rough in dollars.

Jewelers were also hurt by the volatile currency as gold prices in rupee terms rose while gold became much cheaper in international markets. Furthermore, the hikes in the gold import duty from 4 percent to 10 percent raised costs for jewelers. As a result, India lost its long-term status as the world’s leading gold consumption country to China, as consumers in India didn’t see the same value opportunity in gold products as the Chinese.

Rather, the rupee depreciation and high gold prices fueled uncertainty and consumer caution amidst a general slowdown in economic growth. In contrast, the recent stability reflects confidence in the new government, and people in India are now optimistic about the economy. Hopefully, that will encourage spending and jewelry sales in time for the Diwali season that begins on October 23, although it might be unfair to expect meaningful growth in such a short timeframe.

In the longer term, the trade ought to look at other areas of government support to boost trade and stimulate growth. While the recent budget was received favorably and was largely considered pro-business, it sent some mixed messages to the trade when considering industry specifics.

Just when the industry should be lobbying to reduce the import duty on polished diamonds, the government instead raised it from 2 percent to 2.5 percent. The government also applied the duty to half-cut or broken diamonds, which weren’t included before. Most surprising was that the 10 percent duty on gold was not revised.

Understandably, the government had less than two months to prepare the budget and didn’t want to take drastic measures on such short notice. Therefore, these issues, particularly the gold import duty, will likely be revisited in the coming year.

The local industry appears unconcerned about the duty since they are primarily exporters of polished, rather than importers. As a diamond manufacturing powerhouse, why would India need to bring in additional polished, many asked Rapaport News during IIJS. True enough, and the import duty has served to reduce round tripping – the practice of re-importing diamonds and then using them as new export transactions to procure additional bank financing – as it was intended to do.

However, the duty also discouraged foreign companies from operating in India and so the country has missed an opportunity to raise its profile as a diamond trading hub. The government, and the local industry for that matter, tends to focus on manufacturing at the expense of developing trading activity in the country. This was more evident than ever at IIJS this past week where both international buyers and foreign exhibitors were severely lacking. Any drive to evolve IIJS into an important show on the international trading calendar has fizzled out.

One show doesn’t make a market and the sluggish activity may be due to the earlier timing of IIJS this year. However, more needs to be done to stimulate trading activity in Mumbai.

Some initiatives are encouraging. The Gem and Jewellery Export Promotional Council (GJEPC) is lobbying the government to allow mining companies to hold viewings of rough diamonds for their online auctions in the Bharat Diamond Bourse (BDB). This would inspire more manufacturing, mind you, but the intention is to follow up with polished auctions and viewings. Currently, goods can only come into India based on a sale, and there is no provision allowing for diamonds to come in on consignment (memo) – the exception being to exhibit at a show like IIJS.

Also, an international diamond week – akin to those that take place in Israel and New York – is reportedly planned to take place in the BDB in 2015, which would be another step in the right direction. So would an initiative to improve access from Mumbai to Surat as well as infrastructure within Surat. The decision to establish a diamond bourse close to the city’s manufacturing hub would serve as an important base for local and international traders visiting the city.

There is no doubting that India is still the powerhouse of the diamond industry. Besides its dominance in manufacturing, it is the only country with a significant presence in every stage of the pipeline — from Rio Tinto’s Bunder mine development, which is expected to come on stream in 2019, to jewelry designs showcased during the India International Jewellery Week that preceded IIJS, and its vibrant retail jewelry market. India accounted for approximately 8 percent of global polished diamond consumption in 2013, ranking as the fourth largest diamond jewelry market behind the U.S., China and Japan.

However, the country cannot afford to be complacent as manufacturing centers continue to grow in Southern Africa and China, and as trading continues to expand globally. While Antwerp, Ramat Gan, New York, Hong Kong, Dubai and Gaborone all compete for activity, Mumbai tends to take its position for granted.

There are indeed positive signs that the market will grow in 2014. While Diwali will be the first test of confidence, the gem and jewelry trade is basing its optimism on its expectations of the government. The industry is looking forward to a more open and receptive dialog with Modi than they enjoyed with his predecessor, which will hopefully enable a sustainable growth strategy across all areas of activity. While Diwali may be too soon to reflect growth based on the new government’s policies, it is enough time to better understand its tone and attitude toward the industry. In that regard, the gem and jewelry trade has high expectations and with that comes the added pressure for Modi to deliver before the honeymoon is over.  

The writer can be contacted at

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to or contact your local Rapaport office.

Copyright © 2014 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
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Tags: Avi Krawitz, diamonds, Diwali, GJEPC, IIJS, India, jewellery, Jewelry, Narendra Modi, Rapaport
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