Gems & jewellery industry set to double in 5 years
1 Dec 2013 9:27 PM GMT
Diamonds are forever, as the saying goes, and the costliest among precious stones with the famed Indian ‘Kohinoor’ — that graces the Queen of England’s crown - still part of history. Jewellery has a special significance in Indian culture and has been an integral part of our lifestyle for centuries. Even today, our country has a large domestic jewellery market and is the largest consumer of gold jewellery in the world with 29 per cent share of total global demand for gold as jewellery, besides also having a robust jewellery manufacturing industry. Gems still continue to remain an intricate part of the jewellery industry and are considered by many buyers the safest form of investment, besides also a social attraction.
With the Rs 2.5 lakh crore domestic Gems & Jewellery industry expected to double in size in the next five years to between Rs 500,000 crore and Rs 530,000 crore by 2018, this sector is considered one of the most important sectors of the Indian economy and also one of the fastest growing sectors in the past few years. Highlighted as a highly export-oriented, labour-intensive industry and a major contributor to employment, gross domestic product (GDP) and foreign exchange earnings alongside the need for a platform that can catalyze networking and growth within the manufacturing, supply, design, machinery, retail areas of this huge industry, this sector is being showcased through a variety of events such as the Mumbai Jewellery and Gems Fair which was held in Mumbai with the participation of numerous industry professionals.
India has a thriving manufacturing base for gems and jewellery and is a well-known global diamonds and jewellery manufacturing hub. Here the regional variation in customer preference has resulted in the development of specific jewellery clusters, specialising in a particular kind of gold and diamond jewellery design preferred by customers. India produces various types of jewellery art, ranging from Kundan to Meenakari to stone and beadwork which show a wide range of influences (Mughal art, tribal art, modern art). The last few years have seen the the emergence of large organised jewellery manufacturers who serve the rapidly organising jewellery retail industry.
The major manufacturing hubs include Delhi (diamond and silver jewellery and articles), Amritsar (Jadau), Jaipur (Kundan, Minakari), Gujarat (Junagadh-polki, Rajkot-color stone, Surat-diamond jewellery), Mumbai (machine-made jewellery, largest wholesale market), Southern cluster (Coimbatore-casting jewellery, Thrissur-lightweight gold), Andhra Pradesh (Hyderabad-semiprecious studded jewellery, Nellore-handmade) and Kolkata (Lightweight plain gold jewelllery – filigree).
The fashionwear segment has an 8 to 10 per cent share but has gained importance with the increase in demand for diamond jewellery. The growth in this segment is being driven by rising income levels and the adoption and promotion of Western concepts such as solitaire engagement rings. Diamond-studded gold jewellery, non-gold jewellery and pure gold jewellery for regular wear has around 25 to 30 per cent of the market and includes comparatively lower-value jewellery and gem-based rings. The non-gold jewellery, some diamond-studded and pure gold jewellery in ceremonial and bridal wear segment, is the largest segment with 60 to 65 per cent share.
‘The Gems and Jewellery sector has been playing a very important role in the Indian economy and has been contributing between 6 to 7 per cent of the country’s GDP, apart from large-scale employment generation and foreign exchange earnings,’ said Gitanjali CMD and Federation of Indian Chambers of Commerce and Industry (Ficci) Gems and Jewellery Committee Chairman Mehul Choksi. ‘The value created by the Gems and Jewellery sector is as high as the apparel sector and much higher than many other sectors in India. The steps taken by the Government to liberate the Indian Gems and Jewellery sector in the 90’s is one of the important reasons for the increased export contribution by this sector. The liberalisation has also resulted in a shift from the unorganised to a more organised set of players which resulted in greater transparency and adaption of higher quality and design standards.’
‘However, the recent steps taken by the Government to restrict gold imports are definitely having a negative impact on the Gems & Jewellery sector. We hope that this is only a short term measure and the Government quickly intervenes to normalise gold imports and exports, besides removing restrictions on gold consumed for jeweler manufacturing,’ he urged while mentioning that China’s jewellery exports are four to five times more than India’s exports.
Ficci Secretary-General Dr A Didar Singh noted that considering the Gems and Jewellery industry’s immense potential and contributions, the Government has also declared the sector a thrust area for export promotion. ‘However, due to the increasing current account deficit (CAD) and curbs put on importing gold in the past few months, the industry has been severely affected and these restrictions are inadvertently leading to a state of panic among the jewellery-manufacturing sector,’ he pointed out.
Observing that in order to resolve the CAD issue there is a need to look at measures on both the export and import side, it is also important to seek a balanced approach which would safeguard the interest of all stake-holders, he said. Although the CAD situation is looking better now, the turbulent times for the sector have yet not ended, he added.
The issues were highlighted at a panel discussion on Present Scenario and Challenges Faced by Jewellers at the Mumbai show. ‘India is called the golden sparrow of the world,’ said Ficci President Naina Lal Kidwai, adding, ‘As an environmentalist, I know the sparrow is dying out.’ Describing the Gems and Jewellery Industry as a key one with robustness and growth in consumption, she said that the Government is focusing on employment as its key message. ‘There are 2.5 million people employed in this industry (including many self-employed). Exports are also a key ingredient of this industry but the strictures will be there for six to 12 months and we need to work within them,’ she cautioned while noting that this sector is promoting cultural heritage alongside contributing to the Exchequer.
Urging the jewellery industry to be realistic about exports and imports of gold not likely to happen at present, she said that investment purchase of gold is being curtailed by the Government as it cannot distinguish the end use of gold. ‘We have to recognise the constraints within which we have to work and there is a strong need for Government and industry to work closely in this regard.’
GIA India Laboratory MD Nirupa Bhatt said that just like salesmanship is important to the apparel industry, so also this emphasis should be made in the gems and jewellery industry by empowering sales staff. ‘Salespersons should know the story of jewellery like Dogra jewellery. Let us invest in that education to create that value. Tiffany sells the same graded stone (which is not branded) to consumers who go out with a feeling of satisfaction of having bought something special,’ she said.
She said that the Government has provided some funding for training gems and jewellery employees but jewellers are reluctant to send their staff for training due to loss of workdays and compensation. ‘This is a challenge we need to face as they lament that trained employees often leave to join their competition.’
Echoing her was Neelesh Hundekari, Partner & Asia Pacific Head-Luxury, who said that the Indian jewellers industry has only succeeded in casual and daily wear jewellery products but are lagging in bridal wear jewellery sales. ‘Marketing jewellery is like selling a dream though uniqueness and combination of designs also plays an important role,’ he said while noting that copying is not unique to India alone and occurs globally. Stressing the need for innovation and creation in design with new lines, GJF Chairman Haresh Soni said that international chains have less turnover but higher markups and Indian chains should rather focus on value-addition instead. ‘Gold is a symbol of prosperity and appeals to both younger and older generations across social strata within the country, besides becoming a source of social security for a large section of society.
Panelist Sankar Sen said that India has 50 million goldsmiths and most of them copy branded jewellery and sell at a cheaper rate. ‘Also, 60 per cent of Indian jewellery is sold in rural and semi-rural areas and unless we come out with effective measures, we will remain static,’ he noted. Another panelist, Dharmesh Sodah, said that besides industry employees needing to become ‘good story-tellers’ and successful salesman, the government’s training initiative is a step in the right direction.
Ficci also released a study report by A T Kearney firm, the first-ever release of a research report on the industry, which highlighted the gems and jewellery industry’s current status including issues and challenges facing this sector and the appropriate solution themes.
This industry provides direct employment to roughly 2.5 million people with the potential to generate employment of 0.7 to 1.5 million over the next five years. This is comparable to the 2.1 million jobs provided by IT services and is 2.5 times that provided by basic iron and steel manufacturing and automotive manufacturing. In 2012-13, the industry drove jewellery exports to the tune of Rs 227,000 crore, outperforming textiles and apparel exports by 25 per cent. The industry also drove value addition of more than Rs 99,000 crore, which is comparable to several large industries such as apparel manufacturing.
The study found that demand in India can be segmented into consumption and investment. Unlike most other countries, investment demand for gold is important in India and accounts for about 45 per cent of total market demand. Around 57 per cent of the investment demand comes from bars and coins while the rest comes from jewellery.
The high investment demand is driven by a lack of alternative financial institutions for a large section of society, a perceived capacity to hedge against inflation, ability to invest smaller value in gold, high returns in gold over the past 12 years and ease of investing unaccounted money in gold. Also, while the volume demand for gold as jewellery has remained more or less constant over 2005 to 2013, the volume demand for gold bars and coins has risen at a compound annual growth rate (CAGR) of of around 13 per cent in the same period.
From the supply side, the value chain consists of imports, mining, refining, trading, manufacturing and retailing which includes a mix of players catering to both consumption and investment demand. The Indian gems and jewellery industry is fragmented, with local players constituting about 80 per cent of the overall market. The variances in consumer preferences for designs, quality and material across different regions have historically present a challenge for national and organised players to create design-led differentiation.
The share of organised players in the industry is growing, specifically that of regional players. However, there is a risk of reversal in this trend due to increasing regulatory restrictions on gold imports and the price differential between the official and unofficial supply of gold in the
market. The supply side is also characterised by several local and independent stores in rural areas that play the role of financing entity, providing customers an investment option and lending money against gold.
The industry faces several challenges impacting consumption and the investment demand side of the market. While challenges in talent and skill management, research and technology adoption, and limited financing options are core to players catering to the consumption demand for jewellery, an increasing investment demand for limited supply infrastructure affects the investment side of the market. High import dependence and regulatory curbs impact both consumption and investment demand of the market. There is very little domestic production of gold, which has resulted in very high dependence on imports and made the industry susceptible to any regulations that constrain gold supply.
In addition the supply of recycled gold from the domestic market is limited. In terms of regulatory policy, there is lack of differentiation between investment demand and consumption demand. As a result, while imports have surged primarily to feed investment demand, regulations have also constrained consumption demand. There is not clear policy on the investment demand of gold.
There is substantial investment demand, in both jewellery bar and coin form, due to the great attractiveness of gold as an investment option, limitations of alternate investment options and inadequacies of financial products backed by gold. However, bars and coins in particular have limited value addition and thus make a limited contribution to industry growth. Further, the investment demand adds to the import burden, leading to regulatory actions that impact the industry. There are a number of jewellers that cater primarily to investment demand, especially in rural and semi-urban areas.
The industry is fragmented with MSME-sector dominance. Over the last decade, there has been considerable increase in share of organised sector and ,corresponding transparency. However, there is still a perception of opaqueness, particularly due to the fragmented nature of the industry. With the last five years witnessing the share of national and regional chains increasing from three to five per cent and seven to 17 respectively, this perception is improving and is expected to improve further in the long run.
With the Rs 2.5 lakh crore domestic Gems & Jewellery industry expected to double in size in the next five years to between Rs 500,000 crore and Rs 530,000 crore by 2018, this sector is considered one of the most important sectors of the Indian economy and also one of the fastest growing sectors in the past few years. Highlighted as a highly export-oriented, labour-intensive industry and a major contributor to employment, gross domestic product (GDP) and foreign exchange earnings alongside the need for a platform that can catalyze networking and growth within the manufacturing, supply, design, machinery, retail areas of this huge industry, this sector is being showcased through a variety of events such as the Mumbai Jewellery and Gems Fair which was held in Mumbai with the participation of numerous industry professionals.
India has a thriving manufacturing base for gems and jewellery and is a well-known global diamonds and jewellery manufacturing hub. Here the regional variation in customer preference has resulted in the development of specific jewellery clusters, specialising in a particular kind of gold and diamond jewellery design preferred by customers. India produces various types of jewellery art, ranging from Kundan to Meenakari to stone and beadwork which show a wide range of influences (Mughal art, tribal art, modern art). The last few years have seen the the emergence of large organised jewellery manufacturers who serve the rapidly organising jewellery retail industry.
The major manufacturing hubs include Delhi (diamond and silver jewellery and articles), Amritsar (Jadau), Jaipur (Kundan, Minakari), Gujarat (Junagadh-polki, Rajkot-color stone, Surat-diamond jewellery), Mumbai (machine-made jewellery, largest wholesale market), Southern cluster (Coimbatore-casting jewellery, Thrissur-lightweight gold), Andhra Pradesh (Hyderabad-semiprecious studded jewellery, Nellore-handmade) and Kolkata (Lightweight plain gold jewelllery – filigree).
The fashionwear segment has an 8 to 10 per cent share but has gained importance with the increase in demand for diamond jewellery. The growth in this segment is being driven by rising income levels and the adoption and promotion of Western concepts such as solitaire engagement rings. Diamond-studded gold jewellery, non-gold jewellery and pure gold jewellery for regular wear has around 25 to 30 per cent of the market and includes comparatively lower-value jewellery and gem-based rings. The non-gold jewellery, some diamond-studded and pure gold jewellery in ceremonial and bridal wear segment, is the largest segment with 60 to 65 per cent share.
‘The Gems and Jewellery sector has been playing a very important role in the Indian economy and has been contributing between 6 to 7 per cent of the country’s GDP, apart from large-scale employment generation and foreign exchange earnings,’ said Gitanjali CMD and Federation of Indian Chambers of Commerce and Industry (Ficci) Gems and Jewellery Committee Chairman Mehul Choksi. ‘The value created by the Gems and Jewellery sector is as high as the apparel sector and much higher than many other sectors in India. The steps taken by the Government to liberate the Indian Gems and Jewellery sector in the 90’s is one of the important reasons for the increased export contribution by this sector. The liberalisation has also resulted in a shift from the unorganised to a more organised set of players which resulted in greater transparency and adaption of higher quality and design standards.’
‘However, the recent steps taken by the Government to restrict gold imports are definitely having a negative impact on the Gems & Jewellery sector. We hope that this is only a short term measure and the Government quickly intervenes to normalise gold imports and exports, besides removing restrictions on gold consumed for jeweler manufacturing,’ he urged while mentioning that China’s jewellery exports are four to five times more than India’s exports.
Ficci Secretary-General Dr A Didar Singh noted that considering the Gems and Jewellery industry’s immense potential and contributions, the Government has also declared the sector a thrust area for export promotion. ‘However, due to the increasing current account deficit (CAD) and curbs put on importing gold in the past few months, the industry has been severely affected and these restrictions are inadvertently leading to a state of panic among the jewellery-manufacturing sector,’ he pointed out.
Observing that in order to resolve the CAD issue there is a need to look at measures on both the export and import side, it is also important to seek a balanced approach which would safeguard the interest of all stake-holders, he said. Although the CAD situation is looking better now, the turbulent times for the sector have yet not ended, he added.
The issues were highlighted at a panel discussion on Present Scenario and Challenges Faced by Jewellers at the Mumbai show. ‘India is called the golden sparrow of the world,’ said Ficci President Naina Lal Kidwai, adding, ‘As an environmentalist, I know the sparrow is dying out.’ Describing the Gems and Jewellery Industry as a key one with robustness and growth in consumption, she said that the Government is focusing on employment as its key message. ‘There are 2.5 million people employed in this industry (including many self-employed). Exports are also a key ingredient of this industry but the strictures will be there for six to 12 months and we need to work within them,’ she cautioned while noting that this sector is promoting cultural heritage alongside contributing to the Exchequer.
Urging the jewellery industry to be realistic about exports and imports of gold not likely to happen at present, she said that investment purchase of gold is being curtailed by the Government as it cannot distinguish the end use of gold. ‘We have to recognise the constraints within which we have to work and there is a strong need for Government and industry to work closely in this regard.’
GIA India Laboratory MD Nirupa Bhatt said that just like salesmanship is important to the apparel industry, so also this emphasis should be made in the gems and jewellery industry by empowering sales staff. ‘Salespersons should know the story of jewellery like Dogra jewellery. Let us invest in that education to create that value. Tiffany sells the same graded stone (which is not branded) to consumers who go out with a feeling of satisfaction of having bought something special,’ she said.
She said that the Government has provided some funding for training gems and jewellery employees but jewellers are reluctant to send their staff for training due to loss of workdays and compensation. ‘This is a challenge we need to face as they lament that trained employees often leave to join their competition.’
Echoing her was Neelesh Hundekari, Partner & Asia Pacific Head-Luxury, who said that the Indian jewellers industry has only succeeded in casual and daily wear jewellery products but are lagging in bridal wear jewellery sales. ‘Marketing jewellery is like selling a dream though uniqueness and combination of designs also plays an important role,’ he said while noting that copying is not unique to India alone and occurs globally. Stressing the need for innovation and creation in design with new lines, GJF Chairman Haresh Soni said that international chains have less turnover but higher markups and Indian chains should rather focus on value-addition instead. ‘Gold is a symbol of prosperity and appeals to both younger and older generations across social strata within the country, besides becoming a source of social security for a large section of society.
Panelist Sankar Sen said that India has 50 million goldsmiths and most of them copy branded jewellery and sell at a cheaper rate. ‘Also, 60 per cent of Indian jewellery is sold in rural and semi-rural areas and unless we come out with effective measures, we will remain static,’ he noted. Another panelist, Dharmesh Sodah, said that besides industry employees needing to become ‘good story-tellers’ and successful salesman, the government’s training initiative is a step in the right direction.
Ficci also released a study report by A T Kearney firm, the first-ever release of a research report on the industry, which highlighted the gems and jewellery industry’s current status including issues and challenges facing this sector and the appropriate solution themes.
This industry provides direct employment to roughly 2.5 million people with the potential to generate employment of 0.7 to 1.5 million over the next five years. This is comparable to the 2.1 million jobs provided by IT services and is 2.5 times that provided by basic iron and steel manufacturing and automotive manufacturing. In 2012-13, the industry drove jewellery exports to the tune of Rs 227,000 crore, outperforming textiles and apparel exports by 25 per cent. The industry also drove value addition of more than Rs 99,000 crore, which is comparable to several large industries such as apparel manufacturing.
The study found that demand in India can be segmented into consumption and investment. Unlike most other countries, investment demand for gold is important in India and accounts for about 45 per cent of total market demand. Around 57 per cent of the investment demand comes from bars and coins while the rest comes from jewellery.
The high investment demand is driven by a lack of alternative financial institutions for a large section of society, a perceived capacity to hedge against inflation, ability to invest smaller value in gold, high returns in gold over the past 12 years and ease of investing unaccounted money in gold. Also, while the volume demand for gold as jewellery has remained more or less constant over 2005 to 2013, the volume demand for gold bars and coins has risen at a compound annual growth rate (CAGR) of of around 13 per cent in the same period.
From the supply side, the value chain consists of imports, mining, refining, trading, manufacturing and retailing which includes a mix of players catering to both consumption and investment demand. The Indian gems and jewellery industry is fragmented, with local players constituting about 80 per cent of the overall market. The variances in consumer preferences for designs, quality and material across different regions have historically present a challenge for national and organised players to create design-led differentiation.
The share of organised players in the industry is growing, specifically that of regional players. However, there is a risk of reversal in this trend due to increasing regulatory restrictions on gold imports and the price differential between the official and unofficial supply of gold in the
market. The supply side is also characterised by several local and independent stores in rural areas that play the role of financing entity, providing customers an investment option and lending money against gold.
The industry faces several challenges impacting consumption and the investment demand side of the market. While challenges in talent and skill management, research and technology adoption, and limited financing options are core to players catering to the consumption demand for jewellery, an increasing investment demand for limited supply infrastructure affects the investment side of the market. High import dependence and regulatory curbs impact both consumption and investment demand of the market. There is very little domestic production of gold, which has resulted in very high dependence on imports and made the industry susceptible to any regulations that constrain gold supply.
In addition the supply of recycled gold from the domestic market is limited. In terms of regulatory policy, there is lack of differentiation between investment demand and consumption demand. As a result, while imports have surged primarily to feed investment demand, regulations have also constrained consumption demand. There is not clear policy on the investment demand of gold.
There is substantial investment demand, in both jewellery bar and coin form, due to the great attractiveness of gold as an investment option, limitations of alternate investment options and inadequacies of financial products backed by gold. However, bars and coins in particular have limited value addition and thus make a limited contribution to industry growth. Further, the investment demand adds to the import burden, leading to regulatory actions that impact the industry. There are a number of jewellers that cater primarily to investment demand, especially in rural and semi-urban areas.
The industry is fragmented with MSME-sector dominance. Over the last decade, there has been considerable increase in share of organised sector and ,corresponding transparency. However, there is still a perception of opaqueness, particularly due to the fragmented nature of the industry. With the last five years witnessing the share of national and regional chains increasing from three to five per cent and seven to 17 respectively, this perception is improving and is expected to improve further in the long run.
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