Indians have invested in gold and silver from times immemorial. Policy changes, such as higher import duty in a bid to control current account deficit, and restrictions on loans to buy gold and loans against gold, have hurt consumers, corporate entities and traders. The Winsome Diamonds’ episode reveals the impact of other unforeseen circumstances. We will endeavour to polish your plans so that you are not impacted by the uncertainties and share them with the policy makers.
India is the world’s leading consumer and importer of gold. According to the Reserve Bank of India (RBI) Indian households own between 18,000 and 20,000 tonnes of gold. The increasing demand for the yellow metal despite soaring prices has been blamed as the main culprit for India’s current account deficit. The government and the RBI have been trying to cool the demand. The increase in customs duty on gold impacted the demand. The RBI has put restrictions on overseas buys on a consignment basis and allowed imports for local consumption against cash only. This has immediately hit retail sales of coins and bars. The profit margins of jewellers are also likely to feel the squeeze as their business plans get affected.
An RBI panel had recommended introduction of gold-backed financial products to unlock the value of the idle gold. This included a pension programme which would give a monthly pension against a customer’s accumulated gold. The panel also mooted setting up Bullion Corporation of India for acting as a banker of gold stocks.
Gold jewellery accounts for roughly 80 per cent of the Indian jewellery market. Fabricated studded jewellery, including diamond and gemstone studded, accounts for the rest. Most of the gold jewellery made in India is for the domestic market. But most of the rough and uncut diamonds processed in India are exported, either as polished diamonds or diamond jewellery.
The bullion industry faces many problems. These include a host of curbs on export and import of gold, and the fragmented and unorganised nature of the bullion market. The prices vary across the country in the absence of a national benchmark.
When it comes to jewellery, Asia Pacific is the world’s largest market. India and China are the two largest global consumers of gold and also have most of the jewellery processing and manufacturing industry. The global jewellery market is estimated to grow at the CAGR of 5 percent plus and top $257 billion in revenue by 2017. The Asia Pacific and Middle Eastern markets are the main drivers, though US stays the dominant player.
Diamonds manufactured in India constitute 65 percent by value, 85 percent by volume and 92 percent by pieces of the world diamond production, making the country not only the leading global manufacturer but also one of the highest consumers of rough diamonds in the world today. India and China are predicted to together account for over 30 percent of global diamond market in 2015. These two neighbours are likely to get past the US by 2020 with a 40 percent market share.
The Indian gem and jewellery industry is facing many challenges because of increasing prices of gold and rough diamond, drop in supply of cut and polished diamonds, problems in mining countries, and diminishing capabilities of existing mines. Other luxury products present a growing danger for the Indian gem and jewellery industry.
(Disclaimer: The information has been aggregated through secondary research. IFIE is not responsible for errors if any)