UBM Publication

India's Leading Gems & Jewellery Companies

Exports of the gems and jewellery sector dropped by 11% in FY14 to US$ 34.7 bn compared with US$ 39.06 bn in FY13. The sector accounted for 14% of India’s merchandise exports in FY13 and 13% during April-November 2013. The decline was mainly due to lower exports of gold jewellery and medallions, which in turn were linked to lower imports of gold bar and jewellery. Further, exports of coloured gemstones fell by 20% and amounted to US$ 519 million, with exports of cut and polished diamond increasing by 12.6% during the year. Silver jewellery exports increased by a strong 58.57% totaling US$ 1460 million.

Key export destination for gems and jewellery in FY14 were UAE with 35% share of exports valued at US$ 12195.34, followed by Hong Kong with 28% share valued at US$ 9790.45 and USA at 14% share worth US$ 4948.92.

Cut and polished diamonds record higher exports
Exports of cut and polished diamonds was estimated at US$ 19.63 bn in FY14, up from US$ 17.43 bn in FY13, indicating 12.6% YoY growth. Increase in exports of cut and polished diamonds with a corresponding increase in the imports of rough diamonds bodes well for the segment. It indicates an increase in cutting, polishing, and other manufacturing activities in India. In carat terms, exports declined from 35.1 mn carats in FY13 to 34.7 mn carats in FY14. The cut and polished diamonds segment registered an increase for the first time since FY11. Exports of cut and polished diamond to Hong Kong amounted to US$ 9.25 bn in FY13, followed by the US with exports worth US$ 4.5bn and the UAE with US$ 3.33 bn.

Gold jewellery and gold medallion exports on the downslide
Gold jewellery and gold medallion exports declined from US$ 18.27 bn in FY13 to an estimated US$11.05 bn in FY14, indicating a 39.5% negative growth YoY. This has been the segment’s first decline since FY10 owing to the non-availability of the gold following import curbs. Most of the Indian companies were faced with lower exports. Besides, the lower average price for exported gold than the previous year added to the downslide. Key export destinations for gold jewellery were the UAE with a 51% share worth US$ 4.8 bn, the US with a 17% share worth US$ 1.64 bn, and Hong Kong with a 15% share valued at US$1.45 bn.

Imports Scenario
Overall, gems and jewellery imports dropped from US$ 37.5 bn in FY13 to US$ 30.8 bn in FY14 largely due to a 50% fall in gold imports. Imports fell by 17% in FY14 YoY. Among the segments, rough diamond imports increased by 12%, while that of rough colored gemstones increased by 14%. Imports of cut
and polished diamonds picked up in FY14, with a 17% rise YoY after recording a 30% decline in FY12 and a 61% decline in FY13.

Rough diamond imports on the rise
Imports of rough diamonds increased from US$ 14.9 bn in FY13 to US$ 16.7 bn in FY14, recording a 12% YoY growth. The segment saw a marginal decline of 1.5% in FY13. Overall, rough diamond imports recorded a healthy CAGR of 17% during the FY10-FY14 period.

Imports of gold bar and jewellery plunge in FY14
Gold bar imports dropped by nearly 50%, from US$ 11.3 bn in FY13 to nearly US$ 5.4 bn in FY14. Imports of gold jewellery fell drastically from US$ 4.5 bn in FY13 to an estimated US$ 0.57 bn in FY14, recording a negative growth of 87% YoY. Imports of gold bar and jewellery dropped for the first time since FY10 because of import restrictions.

Major Factors Affecting the gems and jewellery industry

Gold severely impacted by government regulations
India is one of the largest consumers of gold, accounting for nearly 20% of world’s consumption. In the past, the Gold Control Act did not permit private holding of gold bars until 1990. However, deregulation of the market in the 90s allowed investment in imported and indigenous gold bars. Deregulation ushered in a new era in the gold market in India. Demand for jewellery and gold bars shot up despite a substantial price increase. Since 2000, international and domestic gold prices registered a CAGR of nearly 16.3%.

Gold demand in India is satisfied entirely through imports, since domestic production is insignificant. Gold is the second largest import commodity after crude oil. Gold contributed to nearly 30% of trade deficit during 2009-12, up from 20% during the 2006-09. Large gold imports led to worsening of the CAD during FY12. Rising imports coincided with the expansion of the gold loan market in the country in terms of the volume of gold pledged and loans disbursed. To meet the increasing demand for such loans, NBFCs increased their dependence on banks and other borrowings. NBFCs used gold loans as an easy way to raise loans. The geographical expansion of gold loan companies made things easier. Besides, the rapid increase in gold prices increased the average size of gold loans. The spurt in gold loan activity of NBFCs raised concerns relating to the concentration of assets in the form of gold jewellery loans, NBFCs soliciting public funds by calling them debentures, and lack of transparency in auctioning the pledged gold.

Against this backdrop, the RBI imposed certain restriction on gold imports in 2013 such as:
- The State, Central Co-operative Banks and Urban Co-operative Banks, and NBFCs are not permitted to grant any advance for purchase of gold in any form including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF), and units of gold Mutual Funds.
- The import of gold allowed on a consignment basis by both the nominated agencies and the banks are to meet the needs of exporters of gold jewellery.
- At least 20% of imports have to be exported.
- The units in the SEZ and EoUs, Premier and Star trading houses are permitted to import gold exclusively for the purpose of exports only

RBI Liberalises norms in FY14
The curbs impacted the gems and jewellery sector severely by way of lower imports of gold bar and gold jewellery. Consequently, exports suffered due to shortage of raw material.

RBI liberalized the gold import norms under the new 20:80 rule with immediate effect in May 2014. Under the new scheme, star and premier export houses are allowed to import gold, while banks and nominated agencies have been allowed to provide gold for domestic use as loans to jewellers and bullion traders. The move is expected to increase the monthly average gold import from 25-30 tonnes to 50-60 tonnes. Jewellers can also avail gold loans instead of making full payment. The 20:80 rule requires the importer to export at least 20% of imported gold and use the rest to meet domestic demand. The new norms have suspended gold loans on gold imports for domestic consumption, which were available to companies for a period of six to seven months. Companies will now have to resort to other means of funding that could be more expensive.

Following RBI intervention, gold jewellery exports from India increased for a second straight month in March 2014, with improvement in raw material supply. India exported gold jewellery worth US$ 992.03 million in March 2014, an increase of 6.1% YoY. The country exported US$ 718.36 million worth of jewellery in February 2014.

Bullish prospects for diamonds
India has emerged as the largest manufacturing hub for cutting and polishing rough diamonds. The diamond sector registered significant growth in FY14. The market is bullish with increased demand generated from the US and European markets. The Indian diamond sector is exploring new markets such as Middle East, Russia, and China.

Importance of SEZs
With an aim to provide special incentives to this highly export oriented sector, the government has set up various SEZs, Export Oriented Units (EOUs), and Export Promotion Zones (EPZs) for 100% export of gems and jewellery. Some of operational SEZs include the SEEPZ Special Economic Zone (Mumbai), Manikanchan SEZ (West Bengal), Jaipur SEZ (Rajasthan), and Hyderabad Gems SEZ Ltd (Telangana). Besides, 13 additional SEZs have been approved. The jewellery manufacturing and exporting units based in these SEZs primarily supply diamond-studded jewellery, while a few units in the domestic tariff area (DTA) supply plain gold jewellery. The gems and jewellery units, which are located only in SEZs and EOUs, have the facility of receiving precious metals such as gold/silver/platinum prior to exports or post-exports equivalent to the value of jewellery exported. Further, manufacturers are provided with various concessions and infrastructural facilities.