All That Glitters... Is Gold
It is celebration time for India’s gems and jewellery industry this season, much before welcoming the cheers of the traditional festival. The sector, which was one of the most hit by demonetisation, GST implementation and, in addition, the application of PMLA (Prevention of Money Laundering Act 2002), is literally celebrating the government relaxation in the taxation and money laundering laws. Since the government removed gems and jewellery dealers from the purview of PMLA and also lifted the PAN card requirement of jewellery purchase of over Rs 50,000 in the first week of October, the industry has been in a festive mood. And of course, Dussehra and Diwali come with a double bonanza.
The gems and jewellery sector, is expecting double digit growth in revenue in FY 2018. Contributing around 7 per cent to GDP, the industry of glittered value is not only a large employer with over 2.5 million people working in this sector at present but also an important foreign exchange earner.
Nitin Khandelwal, chairman, All India Gems and Jewellery Trade Federation, was quick to respond to the policy relaxation. “This is a positive step and will help boost the market sentiment. We look forward to good business during this festive season,” he said.
Overall, India is expected to play a more important role in the global gems and jewellery sector, with diamond miners setting up auction centres in India and with significant investment seen in the retail end of the sector by domestic players, foreign players and private equity investors, predicts a recent report by rating agency Care Rating.
India is the largest consumer of gold besides being the largest player in diamond cutting and polishing globally. But in case of diamond studded jewellery, it is still a relatively smaller market with only about 7 per cent market share.
Retail Jewellery Shine
It is a key market for gold jewellery and constitutes about 27 per cent of the global market. While gold jewellery demand (in volume) from India saw a growth of over 5 per cent in 2015, it dropped about 24 per cent in 2016 after demonetisation. Though there was an initial rush for gold right after the announcement of withdrawal of Rs 1,000 and Rs 500 currency in November 2016, it had come to a sudden halt in the ensuing cash crunch.
“Retail jewellery segment in the country is expected to see double digit growth rates in revenue in FY 2018 on the back of regulatory headwinds fading out and continued favourable demographics. Margins of retail players are expected to see improvement over medium term with availability of gold metal loans and increase in share of higher margins diamond and precious stone studded jewellery,” analysts at Care Rating wrote in an August report. This festive season is likely to see this push.
The gold jewellery demand in the domestic market was at around 505 tonnes and demand for bars and coins was at around 162 tonnes in 2016. Both the segments had shown a significant drop as compared to the previous year.
While the fall was more pronounced in case of gold jewellery at 24 per cent over the 2015 demand, the bars and coins segment too affected almost close to that at 17 per cent over the previous year. Apart from demonetisation and fresh regulatory control, the jewellers’ strike in 2016 was also a contributor to this huge fall. This was due to the heavy drop in the sales and demand caused due to the 1 per cent excise duty that was levied on jewellery manufacturing and PAN card requirement for gold purchases above Rs 2 lakh. Worsening the situation, the government announced PAN card requirement for purchases above Rs 50,000 in August. And demonetisation blues further deteriorated the demand. In fact, the rural community was the hardest hit by cash crunch on account of demonetisation, which led to decline in gold demand in last quarter of 2016.
“There was also some shift towards sovereign gold bonds scheme, which was introduced in November 2015. The first quarter of 2017, however saw some revival with a 15 per cent growth primarily driven by jewellery demand. Factors such as monsoon, growth in rural income, gold and diamond prices and reimplementation of GST (with levy of 3 per cent on precious metals and precious jewellery) would determine the domestic demand in 2017,” notes Care Rating report.
Going forward, favourable demographics and improved consumer sentiment coupled with increase in availability of gold and expansion of retail network by organised players would lead to at least 5 per cent growth in the gold jewellery demand in volume terms over the medium to long term. With relaxations in regulatory norms, and the easing of demonetisation pressure, the gems and jewellery industry is set to get back its glitter this festive season.
