It is more than two months since demonetisation of high-value currency notes in India took effect, but the resilient gems & jewellery industry, though stirred, stands strong and stoic in the face of adversity. Obviously, the luxury sector of which the gem & jewellery industry is part of would be the first sector to get hit due to discretionary consumer spending acutely affecting the retail market.
Industry-wise, it is of course the SMEs (small & medium size enterprises) that have been negatively impacted as they trade with majorly small jewellery players in the unorganised players who deal in hard cash. It is reported that local demand for rough as well as polished diamonds declined in December indicating a 4.96% dip in rough imports. Even diamonds miners reported a slowdown in demand for lower-value rough (mostly imported by India) during the past 2 months, due to liquidity issues among SMEs.
The large diamantaires and jewellers in the organised sector, however, are not impacted much. Exports of cut & polished diamonds have revived with renewed demand from US, UAE and other consuming markets. Moreover, larger organised players remain unaffected as they deal in US dollars with only employee expenses requires Indian Rupee. The market leader, KGK Group's Vice Chairman, Sanjay Kothari assessed the situation candidly: “It’s a wonderful decision whose long-term multiplied effects will be unquestionably rewarding. Initial disquiet is supremely temporary and that, too, for a particular group. But while following the global path, India has promisingly announced the channelized reformation under the dynamic leadership of PM Modi, which ultimately leads to survival of the fittest and that is delightfully commendable. Putting an end to lawbreaking formats will not only earn great benefits for luxury retail brands like Entice, but will determinedly augment the entire economy of the nation.”
Not surprising that the Indian domestic market - with 70-75% of the domestic gold jewellery market facing downturn - is still negatively affected due to demonetisation in their business activities of trading, as well as due to subdued demand from retail consumers. In the long-run, however, this move could turn out to be positive for jewellery retailers on the whole as they would benefit from a more organised set up country-wise. According to retailers in the domestic market, the sector has received a big blow as demand for gold has dropped down by nearly 80 percent. Gold jewellery stores are reportedly seeing a drastic drop in jewellery buyers.
When demonetisation was announced on November 8th, it was reported that consumers rushed to buy gold with the cash that they were holding at that time. But, those with black money too converted their ill-gotten cash into gold with some jewellers helping them with backdated bills. After some jewellers were raided by the government, this trend of buying jewellery slowly ebbed away with demand down by 80 percent now. The days following November 8th were confusing for consumers who went into a panic mode with the cash they were holding. But industry leaders saw demonetisation as a good step for long term benefit. The Gem and Jewellery Export Promotion Council (GJEPC) Chairman Praveenshankar Pandya commented: “It is a wonderful move and long overdue. We were seeing a lot of counterfeit currency, which made it difficult for common individuals. This is a bold decision, which might cause short-term difficulty but is good for long run and will help strengthen our currency.”
After dull Diwali sales this year, the domestic market is seeing a repeat during the current marriage season when gold is normally bought in huge amounts. Also, less of new jewellery is bought but instead old gold jewellery is being exchanged for new gold jewellery for the wedding. However, not all is lost, as some jewellers in the south of India have been seeing reasonably good demand during the current wedding season. Of late, an increase of 20 to 25 percent has been reported by jewellery retailers, from a slump in business as deep as 90 percent after demonetisation. The World Gold Council Managing Director, India, Somasundaram PR said, "The act of demonetising high-value currency notes by the government is a decisive and welcome step to curb tax evasion and improve compliance and an important milestone in the journey towards the vision of becoming a cashless economy. This will be transformative for gold as this has the potential to squeeze out the unofficial trade, and drive greater transparency across."
Likewise, some jewellers with a positive mindset see this as a 'correction' and hope the business will peak in the next quarter. The trade is also hopeful of the temporary slump in demand in the domestic market and will see growth with better sales next quarter. Vipul Shah, former chairman of GJEPC and Partner of Asian Star voiced the opinion of most of the industry players in that the plus point of demonetisation is that the domestic market is now marching towards becoming much more organised with legitimate transactions, following labour laws, etc. “It's mainly the domestic industry that has been adversely affected, right from Nov. 8th till present. However, the Southern sector has almost normalised and has picked up business but it is the Northern part of the country which is still struggling with retail sales coming down sharply. Established brands like Tanishq, etc., have done well though. Production went down during the past 2 plus months, but the sector is organised at present.”
All said and done, 'Demonetisation' may have created a stir in the Indian gem & jewellery industry but majority opinion sees it as a step in the right direction. Industry players look towards the future for a well-organised industry as against maybe some disorganised pockets in various part of the country.
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough & Polished
