In Focus: India

In August – September India was the obvious leader in terms of publications dedicated to the rough and polished diamonds market and the variety of subjects covered in the industrial mass media.
This was due to many reasons: this year, the country saw significant changes introduced to its legislation related to domestic market regulation; the jewellery industry of India is developing at a fast pace more and more actively penetrating the world market; the country is the traditionally largest consumer of gold and one of the largest consumers of diamonds. All this was joined by some other reasons. The first and foremost was the seasonal phenomenon: in this time of the year, other trading centres dealing in rough and polished diamonds are sensibly in their low market. Besides, this period was gingered by one of the largest Indian jewellery trade shows. Therefore, there is a need to understand what is going on in the country, which is competing with China by the number population and occupies the leading position in Asia by the number of billionaires.
This year, the Indian government took a radical step to stimulate the jewellery sector and removed customs duties for import of polished diamonds. This decision was greeted by jewellery market participants in various countries. In India, there were some apprehensions about its possible negative influence on the labour market (as is known the jewellery industry employs at least one million Indians).
It remains to be seen whether these apprehensions were true. At the same time, some analysts see new problems somewhere else: they believe that this move will facilitate speculative transactions. Thus, Chaim Even-Zohar, a veteran observer, has just suggested this in the title of his article: “India’s import duty exemption: curse or blessing?”
The enormous success of the Indian industry is partly, maybe largely, a result of good cooperation throughout the years, says the analyst. The recent removal of import duties on polished diamonds was an additional step meant to make India a more attractive trading center, to enable foreign buyers to find all their polished requirements in Mumbai.
 Sadly, as is often the case, one needs only a handful or so of unscrupulous profiteers to ruin a good thing for everybody. That may be the case now regarding the import duties.
In Zohar’s opinion, based on the figures of current import and export of rough and polished diamonds compared with the previous year and on his conversations with the Indian diamond industry people, the sharp growth of statistic indicators points to “circular trade” going on: a major part of stones circulates between India and Dubai avoiding the manufacturing sector. One “sophisticated” trader told the journalist, “There are some aspects of these transactions I frankly don’t understand. Playing safe is staying away from it all.”
According to the journalist, the Indian Gem and Jewellery Export Promotion Council (GJEPC) is wide awake to all these practices but has no leverage to combat the re-export, the more so that there are no violations in terms of the legislation. However, Zohar believes that any further progress in this direction may lead the government to review its decision to remove import duties.
Another worrisome aspect in the Indian jewellers’ business is connected with their deepest dependence on export of their products to foreign markets and first of all to the US market. It was here that they ran into a new problem. It was not even due to the dropped demand occurred in the US market because of the economic recession.
From July 1, the Indian jewellery fell under the law, which cancelled the action of the Generalized System of Preferences. This system allows developing countries to export some of their goods to the US market tax-free. However, starting from July the Indian jewellery is liable for a 5.5% tax. It is obvious that this will decrease its competitiveness.
This is stressed by the Indian jewellery industry people themselves. Thus, Arvind Pradhan, GJEPC Executive Director, noted that in the first three months of the fiscal year (from April) the gold jewellery export grew by 31% and from April to June reached $1.7 billion in terms of money.
“According to our information, our export reached its maximum in May and June, on the eve of that day when the USA cancelled the most favoured nation treatment”, he told reporters. According to Pradhan, the Indian jewellers will fully perceive the consequences of the new customs duties from the next January, when the terms of the greater part of previous agreements will expire.
Meanwhile, already in the end of August the Indian press reported about overstocked jewellery depots. The Indian newspaper “Business Standard” noted that lashings of low- and middle-price jewellery were heaped there idle. The demand for jewellery in the USA dropped, while the Indian businessmen are reluctant to cut their prices.
The jewellery stocked at Indian depots is valued at 280 million rupees. A year ago, the figure was 250 million rupees. As reported, top-end jewellery was selling well, since such items were as a rule made by order and usually did not linger at depots.
“One ought to recognize that this industry is not doing very well: commodities go to depots since the demand both at home and overseas is not great and this restrains success of the industry as a whole”, this is how Sanjay Kothari, Chairman, GJEPC, assessed the situation.
Chief Executive Officer Siddarth Kedia of Suashish Diamonds pointed out that this situation was due not only to the stronger Indian rupee towards US dollar but also due to the loss of the most favoured nation status by Indian jewellers in their export to the USA which adds 5.5% of customs duties to the value of their commodities.
One of the advisors to the House of Representatives of the US Congress noted in connection with the Indian jewellery that it was not a competitor for the US jewellery industry because such items as those manufactured in India were not produced in the USA. According to him, the advocates of customs duties for jewellery were trying to punish India for its incompliant position on some of the problems at the Doha round of the WTO negotiations.
This question is still on the agenda. It is expected that in September Jim McDermott, Member of the Budget Committee of the House of Representatives of the Congress, will present a bill aimed to broaden the application of the Generalized System of Preferences by the United States to a significant extent. Obviously, this subject will be routed back to the information field in connection with the debates.
Under such circumstances, it seems quite natural that Indian expansion is growing towards other markets, in particular towards the Russian market, where Choron Diamond is going to build up a retail network and later to start manufacturing jewellery.
Indian companies are also using financial instruments. In August, Firestone International, a company producing polished diamonds and jewellery, invested into Prestige Jewellery, a New York based company, which used to be a wholesale supplier to the US market. The amount of investment was not disclosed.
“The partnership brings together two parties with a shared commitment toward long-term growth and results in the diamond-jewellery industry”, said Prestige Chief Executive Officer Rajiv Kothari. “We are excited with the future opportunities of working with the Firestone team and hope it will be successful”.
There is a reverse process going on. The diamond and jewellery producing Indian companies registered at the exchange appear to be in the center of attention of major foreign investment funds including such prominent investment market participants as Citigroup, Morgan Stanley, BSMA, Goldman Sachs and UBS, which recently bought blocks of shares in Indian companies Gitanjali Gems and Shrenuj & Co.
Market analysts believe that such deals prove growing interest towards the diamond market previously ignored by investors. In their opinion, the acquisition of shares issued by the Indian companies was possible due to an ever-expanding corporative approach to business in the diamond industry, which started to substitute the traditional family-business concept. Besides, the investment funds and some jewellery market participants display their interest in making investments into the Indian retail segment.
The annual International Jewellery Show in Mumbai (Bombay), organized by GJEPC, is an important element in promoting the Indian jewellery industry.
The Indian International Jewellery Show - 2007 (held on August 30 – September 3) turned to be one of the most significant events of the year for Indian jewellers.
This was the second largest and the most popular jewellery show in Asia. Its organizers expected it would be visited by some 25 000 persons. However, their number was close to 40 000.
Many foreign participants of the exhibition noted that the growth observed lately in the Indian consumer market had played a decisive role in their participation in this event. No less important was the removal of taxes for import of diamonds to India.
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