The restrictions imposed by the Indian Government on gold imports will very likely hit imports of the yellow metal, restricting imports to less than 500 tons in the financial year 2014, according to a local industry association.
The restrictions are causing uncertainty and jitters amongst the jewellery manufacturers, the body further says.
Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation (GJF), recently said that India’s jewellery sector was “bleeding” amidst depleting stock of gold, and urged the government to relax the import restrictions.
Indeed, Soni said that judging by the current situation, jewellery manufacturing was expected to contract by some 40 percent in the current financial year which ends on 31 March, over the previous year, and create mass unemployment amongst the workers who are involved in jewellery designing and manufacturing. Total sales, in value terms, would record a steep decline by some 25 to 30 percent in the current fiscal year over the previous year. This decline was attributed to the lack of jewellery variety in the market to attract buyers.
The government took recourse to cutting gold imports as a means to contain the widening current account deficits; gold imports are expected to plummet to 500 tons in the current fiscal year, down from 845 tons in the 2012-13 fiscal year. Soni said that Indian jewellers were willing to support the government’s efforts by pegging down gold imports to a value limit of $30 billion.
But Soni feared that the restrictions were giving rise to smuggling besides creating a monopoly-like situation. The government has devised a so-called 80:20 formula, whereby importers of gold use at least 20 percent of the imported gold in jewellery meant for export. Gold importers face hike in import duty to 10 percent on gold. This has led importers to charge premium on gold supply to retailers and other users.
GJF is urging the Indian government to provide relief to the sector which faces hard times ahead if the restrictions are not relaxed or lifted. Indeed, there is a possibility of the jewellery trade starting a countrywide agitation if the government did not act immediately to rescue the sector from its malaise.
Meanwhile, jewellers have been conspicuously rushing to stepping up their imports of finished gold jewellery, particularly, from Dubai and Singapore following the imposition of a higher import duty rate on gold and rising premiums of up to 10 percent over and above the quoted gold price demanded by sellers.
Mumbai-based jewellers and analysts, speaking to Hong Kong Jewellery on the condition of anonymity, said that the “stiff import duty” on gold made imports of finished jewellery a viable option, and some jewellery manufacturers were even mulling manufacturing overseas. Imports of finished gold jewellery rose steeply in January by about four to five times from 1.0 to 1.5 tons two months earlier, according to GJF which boasts some 300,000 jewellers as its members.
The finished jewellery imported into India is either sold directly in its original form or is melted to creating customized designs more suitable to local taste.
Prithviraj Kothari, managing director of Mumbai-based Riddhisiddhi Bullions Ltd, stated in recent media comments that because of gold shortage in India, imported jewellery was a viable option in terms of costing. The rise in imported finished jewellery into India was also confirmed by Dubai-based wholesalers such as Siroya Jewellers which experienced a surge in its jewellery sales to India.
However, cheaper imports of finished jewellery pose a threat to local jewellery manufacturing companies which provide direct jobs to the country’s 10 million workers, not including retail store employees.
The shortage of gold is also forcing some Indian jewellery manufacturers to consider increasing the production capacity of their overseas manufacturing operations, particularly in countries such as Thailand, Malaysia and China. Gitanjali Exports, for example, is toying with the idea of increasing its manufacturing capacities at its units in China and Thailand.
The imposition of the mandatory requirement to export 20 percent of their overseas gold purchases has irked many jewellery manufacturers who are calling on the government to remove this requirement, according to GJF. The government is expected to review the situation once the exact extent of the trade deficit is known. Gold imports plummeted to 21 tons in November 2013 compared with a record high of 162 tons in May of the same year.
With the country having elections in late spring this year, politicians are trying to garner sympathies for their respective parties by projecting themselves as “business friendly”. There were reports that the ruling Congress party chief Sonia Gandhi had asked the government to relax some of the country’s import restrictions on gold; the news gave the yellow metal the much-needed boost in terms of a slight price hike despite the fact that as of early February the government had not revised its decision on imposition of import duty.
Indian finance minister Palaniappan Chidambaram, attending the recent World Economic Forum in Davos, Switzerland, said that gold imports could only be scaled back once the country’s current account deficit is under control. Nevertheless, the fact somebody as prominent as Gandhi is making a call for changes has increased hopes that they might be on the card.
“At least it’s being reviewed and they’ve obviously listened to the trade, jewellers, banks and so on,” one prominent Mumbai-based jeweller said. “They are asking for some relaxation going forward.”
Besides Hindu religious festivals that trigger huge sales of jewellery and gold, the wedding season in India is also a time when jewellers usually do a booming business. But the 2013 wedding season failed to produce any signs of a positive change. Indeed, the trade reported a 20 percent decline in demand over the year-earlier season.
Although gold prices in the international markets have seen a 25 percent drop, prices of gold in India have not fallen or even stabilized, thanks to the restrictions imposed by the government and the depreciation of India’s rupee currency against most currencies of the world. Bachhraj Bamalwa, the GJF director, explained that gold prices in India had not declined because of the high import duty and the heavy premium charged by importing authorities. The rupee’s depreciation has not helped matters much. These factors had contributed to a 15-20 percent fall in demand during the wedding season, with consumers buying only what are barely needed for the wedding, according to Bamalwa whose views were echoed by Indian gold and jewellery retailers.
Because of the high jewellery costs, consumers tend to use the less expensive 14-karat gold for diamond jewellery instead of the traditional 18-karat gold.
Pankaj Parekh, the vice chairman of India’s Gems and Jewellery Export Promotion Council (GJEPC), discerned a rising demand for 14- karat gold used in diamond-studded jewellery because that metal was, at least, 16 percent cheaper than 18-karat gold. Gold jewellery retailers are now investing more for developing lightweight designs at lower prices in order to survive in the competitive market. They are looking at new and trendy designs which are lighter in weight but look a little bigger in size, according to Bamalwa.
Despite China having overtaken India as the world’s leading gold-consuming nation in 2013, India’s significance as a prime gold-consuming nation will not decrease because, as one jewellery retailer told Hong Kong Jewellery, gold plays a “key role in India’s culture”. Indeed, Ahmed bin Sulayem, executive chairman of the Dubai Multi-Commodities Center (DMCC), which together with the GJEPC is hosting the Global Gem & Jewellery Fair in Dubai’s Atlantis, The Palm, in the third week of March, stated at a press conference in Dubai that it was vital to continuously create new opportunities to nurture international relations with strong partners such as India.
India also continues to be a world leader in the production of cut and polished diamonds, emeralds and tanzanite. Parekh claimed that 14 out of every 15 diamonds in the world are cut and polished in India.
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