Last week, the Gem & Jewellery Export Promotion Council (GJEPC), the apex body of India’s gem and jewellery export industry, reported a 3.46 per cent dip in total exports from the sector during financial year 2015-16. Over the previous 12 months, the industry had notched up exports of $38.60 billion as against the $39.98 billion it had achieved the previous year.
Though it was the fifth consecutive year that the industry’s overall exports had registered a fall (G&J exports stood at $46.85 billion in 2011-12), the industry was particularly concerned that there had been a large 13.66 per cent drop in the exports of cut and polished diamonds, for long the largest segment in the overall G&J export pie.
This year, at $19.99 billion, it had a share of just over 51per cent in the sector’s exports. A greater cause for concern was that for the first time ever (with the exception of crisis-ridden 2008-09) there was a decline in total imports of rough diamonds, which, at $14.05 billion were 16 per cent below the $16.76 billion figure imported in the previous year.
To an extent the decline reflects the overall global economic slowdown which has affected export industries across the board. Demand in key international markets remains subdued, and even the emerging markets which propped up sales during the 2008-09 crisis, have been hit this time around.
For diamantaires, this has translated into a rather large inventory pile up. Though it is hard to quantify the amount of stock that manufacturers hold, industry sources estimate that on an average, an exporter now has six months stock as against the stock for one-two months that was held in a normal business environment.
GJEPC Chairman Praveenshankar Pandya told a press conference, “Increased financial cost or inventory carrying cost has become unbearable.”
With relatively high rough diamond prices having already squeezed thin manufacturing margins, the strengthening dollar has exacerbated the impact of subdued demand. Most transactions in the industry are denominated in dollars, and since the US has only about 45 per cent share in the global market, depreciation of local currencies across the other 55 per cent, has further weakened purchasing power.
Inevitably there have been layoffs and closures leading to job losses. The situation is serious as the diamond industry alone provides employment to close to one million people.
Clearly, something needs to be done in the immediate short term to halt this trend while keeping in mind that longer term measures are also required.
The industry itself has proposed some steps that need serious consideration at the policy level.
First, they have raised the question of extending interest subvention, which the government has already offered to other sectors affected by the global slowdown, to the industry. This would offset the challenges of higher interest rates that Indian manufacturers are paying vis-a-vis other competing centres, the impact of currency fluctuations, as well as the increased financial cost of carrying larger than usual inventory during the current slowdown.
Secondly, they have asked for support to jewellery exporters under the MEIS, particularly to ensure that they remain more competitive in the US market which is currently relatively one of the strongest globally. Diamond jewellery makes up an important part of overall jewellery exports, thus this will help the diamond manufacturers too.
Thirdly, they have called for implementation of a 0.25 per cent tax on sales of rough diamonds by foreign mining companies in the Special Notified Zone. This will facilitate direct sales within the country, rather than purchasing through online tenders and auctions, and boost margins for Indian diamantaires.
Fourthly, they have suggested policy amendments that would permit Indian diamond manufacturers to carry out ‘job-work’ on a consignment basis for international companies. Such a step would enable optimal utilisation of manufacturing capacity and safeguard jobs even in times of slowdown. Besides, it would also open a new niche for attracting investment in the future.
On many of these issues, the industry has taken a proactive stance, commissioning research and studies and framing suggestions for concrete policy measures. And it continues to look at new areas where it can formulate plans and policies for modernisation and overall development of the industry. The government must now act to help put the diamond industry back on track.
Columnist
He has been a journalist since the mid-1980s, and has spent close to two decades tracking the gem and jewellery industry while holding different editorial positions in industry specific publications and websites
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