Export and Import Trends in Indian Gems and Jewelry Industry
Although gems and jewelry have been a part of the Indian civilization since its recorded history, the significance of the gems and jewelry industry in the Indian economy was realized only in the last three or four decades. This article attempts to provide an insight into the problems and prospects of this industry. It examines the export trends of various components of this industry, i.e., gold, diamond, synthetic stones and gemstones. Demand, recent developments in this industry, measures being taken by the government to give a `push' to the industry and the future prospects of this industry have also been discussed.
The Gems and Jewelry (G&J) sector, basically, deals with sourcing, processing, manufacturing and selling of precious metals and gemstones, such as platinum, gold, silver, diamond, ruby, and sapphire. This sector deals with:
• Polished Diamonds: India is one of the best markets in the world in the polished diamonds sector and is known for its world-class quality of diamonds, as well as for its exquisite diamond cutting skills. Surat and Jaipur are famous world class polishing and designing centers.
• Gemstones: This category refers to precious stones other than diamonds. These stones come under two basic categories: precious stones and semiprecious stones.
• Gold and Jewelry: This category includes gold and jewelry, which are used in the manufacture of various ornaments.
• Synthetic Stones: Synthetic diamond is a diamond produced in the lab by chemical or physical processes. Like naturally occurring diamonds, synthetic diamonds are also composed of three-dimensional carbon crystals. Synthetic diamonds are also called cultured diamonds.
India is one of the fastest growing jewelry markets in the world and is the largest consumer of gold (around 20% of the global consumption) and also the largest diamond processor (around 90% by pieces and 55% by value of the global market). The industry is highly unorganized and fragmented—with around 96% of the players being family-owned businesses. It is estimated that the country has around 450,000 goldsmiths, 100,000 gold jewelers, 6,000 diamond processing players and 8,000 diamond jewelers. The major players in this sector are: Rajesh Exports, Classic Diamond (India) Ltd., Shrenuj & Company Ltd., Goldiam International Ltd., Gitanjali Gems, Suhashish Diamonds, Su-Raj Diamonds & Jewellery Ltd., Vaibhav Diamonds and Tanishq. The major export markets include: the US, Hong Kong, UAE, Belgium, Israel, Japan, Thailand and the UK. 
Export Trends
According to the Investment Commission of India, this industry is expected to have a 65% share of the global market by the end of 2010. According to a McKinsey report, in terms of domestic sales, branded jewelry is likely to become the fastest growing segment and is expected to witness a growth of 40% per annum to $2.2 bn by the end of 2010. The export of gold jewelry was valued at Rs. 3,642.5 mn in 1990-91. This increased to Rs. 11,486.9 mn in 1993-94. The export statistics of gold is shown in Tables 1 and 2 and Exhibit. 
• As per the latest release from the Gems and Jewelry Export Promotion Council (GJEPC), the industry registered exports worth $15 bn in April-December 2008 (provisional) , compared to $14.9 bn in the corresponding period of 2007, representing a growth of 0.59%.
• Further, the total exports of gems and jewelry from India stood at $20.8 bn in the financial year 2007-08, against $17.1 bn in the previous year, indicating a growth of 22.27%. The sector accounted for 13.41% of India's total merchandise exports in 2007-08.
• Out of the total $20.88 bn exports from the Indian gems and jewelry sector, the US and Hong Kong markets accounted for the largest imports with a share of 26% each, followed by UAE at 21%.
• Gold jewelry exports increased from $5.2 bn in 2006-07 to $5.6 bn in 2007-08.
• Export of cut and polished diamonds grew from $10.9 bn in 2006-07 to $14.2 bn in 2007-08, indicating a growth of nearly 68%.
• Export of colored gemstones increased from $246.4 mn in 2006-07 to $276.42 mn in 2007-08.
• The export industry mainly comprises of small-to-large units based in various Special Economic Zones (SEZs), Export Processing Zones (EPZs) in Chennai and Noida and Santacruz Electronics Exports Processing Zone (SEEPZ) in Mumbai, primarily supplying diamond-studded jewelry. The government is proposing to establish more SEZs. 
Demand: Gold and Jewelry
In India, rural areas are major consumers of gold. In 2006, 60% of the demand for gold came from rural India as they have fewer investment options compared to the urbanites. In the first half of 2007, gold consumption rose 70% over the corresponding period in 2006. The first six months saw gold consumption of 528 tons, compared with 307 tons in the corresponding period of 2006. The southern region alone accounted for 40-45% of the country's gold demand. India's import of gold fell by almost 50% to 101 tons during the first quarter of 2008. India imports about 90% of gold from South Africa and the rest from Australia and Russia. To summarize:
• India accounts for 20% of the world's gold consumption, the largest in the world. The country consumes nearly 800 tons of gold yearly, of which nearly 600 tons goes into making jewelry. Further, India is also emerging as the world's largest trading center for gold targeting $16 bn by the end of 2010.
• The Indian diamond jewelry industry is the third largest consumer of polished diamonds after US and Japan. Diamond jewelry consumption is likely to jump to nearly 80% by the end of 2010 and over 95% between 2010 and 2015.
Problems and Expectations
This sector has passed through one of the most difficult years in 2008 with more than 100,000 skilled and unskilled laborers being laid off due to poor demand from the US market—which is reeling under the current global economic downturn. In fact, India's jewelry sales to the US declined over 20% even during the holiday season, i.e., Christmas and New Year. Furthermore, the domestic jewelry demand also decreased by over 20% during the last half of 2008 and the first half of 2009. To counter the situation, the industry demanded for a separate bailout package from the government in the third stimulus package. On July 11, 2009, Vasant Mehta, Chairman, GJEPC, held discussions with the Finance Minister, Pranab Mukherjee, on initiatives needed to revive the industry. Government intervention was sought in the following areas:
• Increasing the flow of dollar liquidity to the industry. Such additional dollar finance may be made available from the foreign exchange reserves of the country.
• Domestic funding at internationally competitive rates (LIBOR based) as opposed to the high interest rates being charged by the banks at present. This can be facilitated with an interest subvention of 2%.
• Citing the peculiar nature of the industry which is impacted by daily price fluctuations, leading to taxation disputes, the GJEPC has proposed the levy of a flat 1% turnover tax in place of all forms of current direct taxes, thereby doing away with arbitrariness, confusion and delays in finalization of tax returns. Owing to recessionary pressures, income on export earnings should be made tax-free for the coming two years.
• Export credit limits sanctioned by the banks as on April 1, 2008 to exporters of the Gem and Jewelry Industry should be continued till March 31, 2011.
• The lack of availability of duty-free gold in many parts of the country severely constrains small exporters who find it difficult to procure their primary raw material and are unable to compete in the international markets. As a relief to them, a Duty Drawback Scheme for gold jewelry exports be introduced.
Certain other measures were also demanded by the GJEPC to provide a relief to the industry. These include: Reduction in import duty on machinery from 10% to 5%; reduction in import duty on plain sold jewelry from 10% to 5%; removal of import duty on rhodium and rough coral; and reduction in import duty on precious metal scrap from Rs. 257.50 per 10 gm to Rs. 100 per 10 gm.
Government Initiatives
In order to revive the Indian economy from the current global economic downturn, the government announced a stimulus package on December 7, 2008. Some of the measures announced in the package that would benefit the gems and jewelry sector include:
• Increasing the post-shipment rupee export credit period from 90 days to 180 days with effect from November 28, 2008.
• Increasing the pre-shipment rupee export credit period from 180 days to 270 days with effect from November 15, 2008.
• Providing an interest subvention of 2% up to March 31, 2009, subject to minimum rate of interest of 7% per annum, to make pre- and post-shipment export credit for labor intensive exports, such as gems and jewelry, more attractive.
• Allowing exporters to avail refund of service tax on foreign agent commissions of up to 10% of FOB value of exports. They will also be allowed refund of service tax on output services while availing of benefits under Duty Drawback Scheme.
Recent Developments
DVN Traders, a Mumbai-based jewelry exporter and manufacturer leveraged the use of IT for its business. The company found online B2B market places such as Alibaba.com and Tradekey.com for selling its products to the customers spread across the world.
Foreign Trade Policy (2009-2014)
In the new Foreign Trade Policy (2009-2014), certain measures were announced for the Gem and Jewelry sector. These include:
• In order to neutralize the duty incidence on gold jewelry exports, it has now been decided to allow duty drawback on such exports.
• Import of diamonds on consignment basis for certification/ grading and re-export by authorized offices/agencies of Gemological Institute of America (GIA) in India or other approved agencies will be permitted.
• To promote export of gems and jewelry products, the value limit of personal carriage has been increased from $2 mn to $5 mn in case of participation in overseas exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has also been increased from $0.1 mn to $1 mn.
• The number of days for reimport of unsold items in case of participation in an exhibition in US has been increased to 90 days.
• In an endeavor to make India an International Diamond Trading Hub, the Government has planned to establish "Diamond Bourses".
• With an objective to meet the dollar credit needs of exporters, a Committee has been constituted with the Finance Secretary, Commerce Secretary and Chairman IBA as its members.
India-Mercosur Preferential Trade Agreement
Mercosur is a trading bloc in Latin America comprising Brazil, Argentina, Uruguay and Paraguay. Mercusor was formed in 1991 with the objective of facilitating the free movement of goods, services, capital and people among the four member countries.
As a follow up to the framework agreement, a Preferential Trade Agreement (PTA) was signed in New Delhi on January 25, 2004. The aim of this PTA was to expand and strengthen the existing relations between Mercusor and India and promote the expansion of trade by granting reciprocal fixed tariff preferences with the ultimate objective of creating a free trade area between the parties. This agreement came into effect from June 1, 2009.
Anant Diamond Jewelry Promotion
The GJEPC initiated a national campaign to promote the domestic gem and jewellery sector and strengthen India's share in the international market on September 19, 2009. The campaign was based on the concept of single line of diamond jewelry and was named the "Anant" Diamond Jewelry Promotion campaign with Bollywood actress Sonam Kapoor as its brand ambassador. This initiative was in tandem with Gold Souk India, Rio Tinto, International Gemological Institute (IGI), and the All India Gem & Jewellery Trade Federation (GJF). The campaign will run through till February 14, 2010. Local retailers and diamond jewellery manufacturers will gain an opportunity to unite and work progressively
Prospects: Investment Scenario
Favorable Government policies such as 100% Foreign Direct Investment (FDI) in Gems and Jewelry through the automatic route have further provided an impetus to the booming gems and jewelry industry. Some of the other major developments in this sector include:
• Reliance Retail is planning an aggressive entry into the jewelry retail market. According to reports, the company will soon open about 400 to 500 jewelry retail outlets across the country.
• The Gitanjali Group has bought `Nakshatra', the premium brand of jewelry promoted by Diamond Trading Company (DTC). Gitanjali Gems, a diamond and jewelry manufacturer has entered into an agreement with the Mineral and Metal Trading Corporation of India (MMTC), a leading bullion trader, and would invest $12.69 mn in the first phase of the joint venture.
• Thai company, Pranda Jewelry, is foraying into retailing in India and will be investing $21.15 mn towards retail expansion in the country.
• Geneva-based luxury watch and jewelry brand, de Grisogono, is firming up its plans to foray into the Indian market. It has set up its first flagship boutique for $5.29 mn. The company will be adding six mono-brand outlets by 2011.
Conclusion
Gold is a time tested asset. Even when the price rises, people continue to buy it. The real value of gold for investors lies, not in its price performance, but in its reliable diversification return. Jewelry designers will have to work on innovative design concepts that will add some utility value to the luxury jewelry products and help them to stay afloat. The KPMG report titled, "The Global Gems and Jewellery: Vision 2015: Transforming for Growth", has projected that global jewelry sales will grow at 4.6% on year to year basis to touch $185 bn in 2010 and $230 bn in 2015. Hence, the outlook for gold looks extremely bullish.
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