It is a tough time for the gems and jewellery sector in India, with the rough patch to continue until both business sentiment and consumer confidence revives. It is estimated that the high gold and silver prices will keep retail demand low, even though the investment demand would continue to remain positive. The fear of the pandemic has created a subdued environment for rituals, traditions, festivals and occasions.
Low economic growth and a fall in disposable income will continue to affect the demand in the sector even after the pandemic subsides. Increased trading in digital gold, however, will provide some respite to the sector as per a report by the firm Dun and Bradstreet.
The report observes that with the government extending the deadline for mandatory hallmarking of gold jewellery and artefacts to June, 2021 the jewellers may get some relief. The report highlights that the online gold market in India may witness growth though it is still in a very nascent stage and accounts for just 1-2 per cent of the overall gold sales by value. It is also expected that a shift towards ETFs (exchange traded fund) and gold bonds from physical gold trading will widen the trading market potential of the investors.
As India has embraced online retailing across different categories in urban areas mobile wallets and apps will also play a key role in the growth of Internet Investment Gold (IIG) in India.
Interestingly, in terms of gold consumption, India continued to be the second-largest market even as domestic consumption witnessed a fall. Gold consumption continued to decline by 74 per cent (YoY) in Q2 2020 against a growth of 12.5 per cent (YoY) recorded during Q2 2019. In FY20, gross exports of gems and jewellery slipped to a three-year low of $ 35.5 billion against $39.7 billion in FY19, a fall of 10.2 per cent on the back of various domestic and global challenges.
On the domestic front, the sector faced policy and procedural challenges such as rise in import duty on precious stones such as polished diamonds and coloured gemstones, tightening of lending terms by banks and stringent customs inspection procedures.
On the external front, factors such as sluggish export demand and withdrawal of the Generalized System of Preferences (GSP) benefit by the United States also impacted the market. Even as the overall imports of gems and jewellery declined by 5.8 per cent (YoY) during FY20, imports of cut and polished diamonds grew by 29 per cent (YoY). India is the world’s largest diamond polishing hub, employing over one million in the sector. Most of the workers who engaged in the polishing of diamonds have migrated back to their hometowns and it is being estimated that diamond businesses may have difficulty in finding workers even after work resumes.
“As the jewellery market may recover there would be ongoing challenges that the sector will have to face. Diamond manufacturing units are unlikely to reopen soon due to labour shortages and gold imports are expected to nosedive in the current fiscal on account of poor demand and soaring gold prices. It is expected that there may be financing challenges as demand is not expected to revive soon. There is a need for a supportive e-commerce policy for the sector to increase demand for online jewellery purchases,” pointed out Arun Singh, global chief economist, Dun and Bradstreet India.
This expert also said that due to subdued jewellery sales, jewellers are stuck with their previous stocks which they cannot replace with hallmark gold even as the government has made mandatory hallmarking of gold jewellery and artefacts from June 1, 2021.
“The COVID-19 pandemic has been having a severe impact on the already troubled Indian gems and jewellery sector. With extended lockdowns in various countries and recessionary pressures across the globe, demand for gems and jewellery is expected to be severely impacted over the next couple of quarters. Since the sector is highly export oriented, the pace of global recovery will play a very important role in the recovery of the sector,” says Singh.
