The Hindu Business Line : A sparkling scenario

Future growth in the gold and jewellery business is likely to be driven by increased exports to the US and other markets, apart from a rise in domestic consumption.

THE `India Shining' factor, is, perhaps, best reflected in the surge in India's gold and jewellery exports that have been making significant contributions to the country's foreign exchange earnings. And driving this upswing in gold and jewellery (GJ) exports is the sprawling SEEPZ Special Economic Zone in Mumbai, which accounts for nearly 50 per cent of the country's GJ exports.

The GJ industry at present contributes over 17 per cent of India's total exports, which have bloated from $7.38 billion in 2000-01 to $8.85 billion in 2002-03. "For the just-concluded fiscal, we expect the figure to touch the $11-billion mark. Our target is to reach $16 billion in the next two to three years and, going by present trends, India can achieve this," says Mr Ramaswamy, President of the Gem and Jewellery Export Promotion Council (GJEPC).

Diamonds account for the bulk of Indian GJ exports; this involves import of rough diamonds, cutting and polishing before re-export. Although the figures for 2003-04 are yet to be released by the government, cut and polished diamonds accounted for 78 per cent of the GJ exports during 2002-03.

With negligible domestic production of gold and diamonds, the GJ industry has to lean entirely on imported raw materials. According to GJEPC data, more than 78 per cent of the country's imports of GJ components were rough diamonds during the April-to-December period of 2003-04 and 12 per cent was cut and polished diamonds.

"During 2002-03, imports of pearls, precious and semi-precious stones aggregated $6.05 billion, accounting for 16.3 per cent of the country's non-bulk imports and 9.9 per cent of its total imports," points out a report prepared by ICRA Ltd.

The bulk of the domestic GJ industry is concentrated in the unorganised sector, which employs about 2 million workers serving over 0.1 million gold jewellers and 8,000 diamond jewellers. And the hub of the country's GJ industry is Mumbai, which receives most of India's gold and rough-diamond imports. However, most of the diamond processing takes place in the neighbouring State of Gujarat, mostly in Surat, Bhavnagar, Ahmedabad and Bhuj. But Mumbai does have a significant number of modern semi-automatic factories and laser-cutting units, most of which are located in the SEEPZ.

The ICRA report has projected that future growth in the gold and jewellery business is likely to be driven by increased exports to the US and other markets, apart from a rise in domestic consumption. It may be noted here that although domestic consumption has dropped in recent years, the country's per capita consumption is still very low, indicating the potential for growth.

A significant trend in the industry is that it is now seeking increased growth through processing of larger size stones and manufacture of diamond jewellery, especially as the country already enjoys dominance in the world cut and polished smaller-sized diamond market.

Export data from GJEPC indicate a gradual shift in Indian exports to higher value segments, reflected in higher per carat realisation from $181.6 in 2001-02 to $191.8 in 2002-03. "In the last fiscal, it will be even higher; during the first three quarters of last fiscal, the figure was as high as $218.7," an official of GJEPC said.

The report has pointed out that one of the roadblocks for the country's jewellery exports is the industry's "inability to compete in global markets on the basis of price and superior design capabilities, with India not having adopted the designs to meet occidental tastes." However, the Indian industry and the World Gold Council (WGC) have introduced international jewellery-designing competitions among Indian artisans to expose them to global design developments.

Further, WGC and GJEPC have initiated a move to set up a number of design centres, with the chief focus on training jewellers. In this context, it is felt that the recently inaugurated Indian Institute of Gems and Jewellery, along with the Jewellery Product Development Centres set up by GJEPC, will make significant contributions.

The ICRA report also sees a possible long-term threat from China. Indeed, although India currently enjoys dominance in the world's cut-and-polished diamond market, China may emerge as a viable rival in the long term.

An increasing number of diamond processors from Israel, Belgium and even India are setting up facilities in China for a variety of reasons, including cheap and skilled labour force and high economic growth over the past decade, resulting in a significant increase in potential consumers in the high-income segment.

However, India, according to the report, still has an "overwhelming advantage" over China. China processes an estimated 2.4 million carats of diamonds annually compared with 180 million carats in India. Further, China has about 0.02 million people working in the industry, as against India's well over a million.

Encouraged by the growth in GJ exports, the government also continues to support the industry, as was indicated by the continuation of the Duty Entitlement Pass Book scheme in the modified EXIM policy for 2003-04. In fact, in May 2003, the government also amended the Diamond and Jewellery Dollar Accounts Scheme, while the Union Budget for 2003-04 abolished customs duty on coloured, rough gemstones and semi-processed half-cut and broken diamonds.

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