EDITOR'S DESK

2016: The Year of Ups & Downs for G&J Industry

India’s Gem & Jewellery industry went through troubled times during 2016, especially after the Government withdrew currency notes of INR 500 and 1000 from circulation in first week of November. Already experiencing effects of down-turn in the global economy, the industry got another jolt of demonetization which created cash crunch and steep downfall in sales right on the eve of wedding season.

Many retailers say that their sales went down as low as 70% but at the same time they are hopeful about positive outcome of the Government’s step of demonetization in future. Mr. Vijay Jain, CEO and Director of ORRA says, “With the government’s decision of demonetization, sales were expected to be slow, not only in the jewellery segment, but in the retail industry as a whole. While this means tremendous change for the unorganized players in the jewellery industry, for brands like ORRA, it spells as bright future in the years to come. The current slowdown however is due to the transition taking place in the market however, we expect sales to get back on track soon.”

Many other leaders like Mr. Jain feel that the step will prove to be a boon for India’s G&J industry in long run. In fact, the industry has shown some signs of revival during second half of 2016. India’s exports of gems and jewellery grew by about 10% to $ 23.5 billion between April and November, driven largely by rising demand in India's major export markets like the US and Europe. In April-November period of 2015, exports from the sector reached $ 21.5 billion, according to the data provided by Gem and Jewellery Export Promotion Council (GJEPC).

The jewellery demand in India typically climbs during the winter’s wedding season. But during year 2016,  sales plunged as nearly two-thirds of jewellery is usually purchased with cash, which is in short-supply.

Mr. Praveenshankar Pandya, Chairman of India's Gem & Jewellery Export Promotion Council (GJEPC) says, "During the cash crunch, diamonds are one of the last things people want to buy. At least for the next six months demand will remain weak."

India’s Shipments of gold jewellery, however, contracted by 10.35% to $2.23 billion during the period under review, from $ 2.5 billion a year ago. Exports of gold medallion and coins too dipped by 5.37% to $ 3.48 billion. Further, according to GJEPC data, imports of rough diamonds grew by 30.5% to $ 11.3 billion in April-November 2016. Imports of gold bars too grew by 32% to $3.1 billion.

GLOBAL:

India’s is an undisputed global leader as far as the diamond industry is concerned. So obviously, India’s cash crunch created by the demonetization has hit hard the global G&J industry also. The biggest effect was seen on De Beers’ sales of last cycle-2016. The Company’s revenue from rough diamonds declined sequentially to $418 million in the final sales cycle of the year as tighter liquidity in India hit demand for lower-priced stones.

The crisis hit at a time when there were plenty of stones in the retail pipeline or were being processed. Sales fell 12% at December 2016 sight from $476 million in November. They were 69% higher than the $248 million recorded a year ago, when demand in the rough market had slumped. Apart from De Beers, smaller Canadian producers such as Stornoway Diamond and Dominion Diamond are also experiencing weaker demand and prices for cheaper stones used in lower-priced jewellery.

In trading hubs like Hong Kong, many retailers are stuck holding diamonds they bought three years back at higher prices expecting robust demand from China that didn't materialize.

The demand is unlikely to revive any time soon as India struggles to dispense enough new notes, industry officials say. So there is no doubt that the year 2016 was an eventful year, perhaps more so than any other in recent memory!


Editor: Suresh Chotai

It’s Time to Frame a Comprehensive Gold Policy

It has been a couple of years now since the Indian Government is trying to formulate a comprehensive gold policy for the country. Recently, former Governor of the Reserve Bank of India (RBI) Mr. Venugopal Reddy has said that there is need for a comprehensive policy on gold, owing to its role in the economy and in order to handle the precious metal in a better way.

In fact, many industry leaders and trade bodies like World Gold Council (WGC), Federation of Indian Chambers of Commerce and Industries (FICCI) and Associated Chambers of Commerce (ASSOCHAM) have time and again recommended the government to frame a national gold policy.

It seems now that the government has taken into consideration the recommendations of the industry and as a result the government may frame a National Gold Policy soon. Besides, it may also establish a Gold Board for managing import-export, develop accredited refineries, drive gold monetization actively and introduce compulsory quality certification of gold.

The WGC had initially suggested framing a gold policy in 2014 to help mobilize and monetize an estimated 22,000 tons of gold lying idle with households and temple vaults into productive use of economic development. “I feel that discussions on gold in India must move beyond gold import curbs and must focus on how this industry can fulfil its vision to make a major contribution to the country’s prosperity in the next five years. We (India) should support this vision by creating a favorable eco system which deals with gold as a fungible asset category, reflecting our cultural and economic significance. We must find ways of mobilizing and monetizing the household savings now imbedded in gold stocks through the formal financial sector for the benefit of the economy as a whole. It’s now hi-time to re-engage all stakeholders to develop a comprehensive long term gold policy which is affiliated to India’s growth objectives,” Mr. Somasundaram PR, MD of the WGC (India) had commented two years back.

Accordingly, the government is expected to set up the Gold Board under the National Gold Policy, and alongside work on development of Gold Exchanges. India’s Finance Ministry held discussions late last year with stakeholders of the industry and sought their views on a National Gold Board, a body on the lines of the Financial Stability and Development Council.

At the same time, India Gold Policy Centre (IGPC) at Indian Institute of Management, Ahmedabad (IIMA) recently boosted the government’s initiatives to introduce a gold policy by releasing a study on the viability of a Gold Spot Exchange in India by Prof. Joshy Jacob and Prof. Jayanth R. Varma of IIMA. One of the key findings of the study is that a Gold Spot Exchange is exceedingly viable and would lead to efficient price discovery, assurance in the quality of gold, active retail participation, greater integration with financial markets and greater gold recycling. The study involves a survey of all important stakeholders of the industry including jewellers, refiners, bankers, commodity exchanges and other participants in the value chain. It also examined the Gold Spot Exchanges in Turkey, China, Singapore and Dubai.

The study also suggests that the Gold Spot Exchange should offer a wide range of contracts to meet the needs of the gold industry like a) Domestic spot gold contract, b) Global spot gold contract denominated in USD based on delivery outside the domestic tariff area (DTA), c) Dore swap contract and d) gold lending and borrowing mechanism (GLBM). Within the limits of capital control regulations, both the domestic and international contracts on the Gold Exchange must be open to the broadest range of participants.

Gold-related policies are also expected to help the Gold Monetization Scheme (GMS) launched by the government.

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