This has been by far the toughest year for the industry in over a decade. Exports are on the decrease, job losses are rampant and the industry has been punished with a high import duty not to mention the banks’ unwillingness to support them. A looming economic crisis and a weak rupee has further led to soaring gold prices, which further hit an all time high after the tension between U.S. and Iraq took a sudden turn. While consumers are forced to walk into the store because of weddings and special occasions, the demand for jewellery has otherwise remained subdued. Vijetha Rangabashyam speaks to jewellers to find out how they are surviving and what the need of the hour is.

There are very few people in this industry who have good things to say about 2019. While the economy and geopolitical climate have been affecting all sectors, the gems and jewellery industry has been affected the most. Right from an unfavourable budget announcement to a steady increase in gold prices and an average demand from the consumers during festivities, jewellers have been caught in a vicious cycle. However, with the kind of policies the government has been implementing across sectors and hallmarking being made compulsory, one thing is very evident – the jewellery industry is not a space for unorganized players anymore. We could deliberate on all the things that have gone wrong over the year, but fact remains that organized players have weathered the storm and are in a better position to tackle the issues as opposed to those who are not willing to change.

As the gems and jewellery industry was looking forward to some relief from the budget announcements that were made in July last year, Finance Minister Nirmala Sitharaman shocked the industry with a move that saw an increase of customs duty to 12.5 per cent from 10 per cent. With the implementation of GST, the industry was on its way to a complete overhaul, but a 2 per
cent increase meant that gold was going to get cheaper in the grey market, leading to smuggling. With this move, many of them were expected to smuggle their money back into the system through gold with a 10 percent premium. While the council and the industry have been in constant talks with the government for more favourable policies, the announcement made it rather clear that the industry is in for a tougher game laying roadblocks for players especially where exports are concerned. “The government has to bring down the customs duty from 12.5 per cent to 6 per cent. When they do that, imports will automatically increase. When imports increase, foreign exchange will go up. We have already suggested to the government to appoint jewellers as agents in the gold monetisation scheme and allow every married woman to bring in 500 grams of gold to be deposited. Once that is allowed, there will be tonnes of gold in the market and in the next 2-3 years they will be able to collect enough imports,” adds Anantha Padmanabhan, Chairman, GJC. The increase in customs duty has led to job losses across the sector and has led to capital blockage for exporters. The FM also reduced corporate tax on companies with a turnover of up to Rs 400 crore to 25 per cent. To discourage cash payments, the finance minister had proposed a TDS of 2 per cent on cash withdrawals exceeding Rs1 crore in a year from a bank account. The FM also scrapped monthly GST return and estate or gift taxes from the existing tax structure.

The gold flux
Throughout 2019, the price of gold has witnessed a seismic wave of fluctuations. While the year began with gold hitting Rs 34,600 per 10 grams in January, prices gradually stabilized after the Indian General Elections. Sales in May during Akshaya Tritiya saw a 25 per cent increase, thanks to the marriage season that boosted consumer sentiment. Considering the previous couple of years witnessed a lackluster demand during Akshaya Tritiya owing to demonitisation and GST, jewellers saw a steady footfall, with more consumers investing in gold coins and lightweight jewellery. However, in August, a weak rupee made import of the precious metal dearer, making the price of the yellow metal costlier. Geopolitical climate affected by trade tension between the U.S. and China coupled with volatility of the India economy led the price of gold to climb steadily in the course of the next few months. “Indian consumers are price sensitive. A sudden increase in price will definitely affect demand and they will definitely postpone their purchases. Looking at what’s happening globally, the gold price might further increase. Decrease in purchase will definitely affect jewellery manufacturers as well, so there will be loss of jobs ,” says Mansukh Kothari, Convener, GJEPC.

The increase of gold prices through the year was also indicative of the fact that there is an impending global recession. The increase in gold price is encouraging people to buy more gold jewellery. They realise that gold will always be a good investment. Jewellers have to be more in tune with what consumers want and spend time and money in wooing the consumers. Major buying happens during weddings and this tradition will never diminish. What they are buying is changing – they are going for smaller pieces, says Surendrapal Singh of Neelkanth Jewellers. The yellow metal was considered recession proof as compared to mutual funds, equities, real estate, and fixed deposits. However, this has been no good news for jewellers as the demand for gold saw a 10 per cent drop through festive season – faltering rural demand and liquidity crunch have also played a role in weakening gold demand in India. “The sentiment has been affected temporarily for sure. It is hard for anybody to digest such a hike in gold price. However, because it is the wedding season, people are compelled to buy. But otherwise, people are waiting for prices to fall back ,” said Mahesh Jagwani of Mahesh Notandass. In January 2020, gold price hit a fresh record high of Rs 41,987 per 10 gram, the highest in the last 7 years. This was an aftermath of tension between U.S. and Iran after a top Iranian commander was killed in an airstrike by the U.S. in Baghdad. “This year, till the U.S. elections, the gold prices are going to
fluctuate. Consumers have to make peace with rise in gold price and whenever there is a slight drop, they should make the purchase,” adds Padmanabhan. However, organized players and chain stores remain positive as they believe that the sudden jump may temporarily affect the business but eventually the demand would stabilize due to extended wedding followed by Akshaya Tritiya. “This is definitely had an impact on jewellery demand. The price is definitely not going to go back Rs 30-32,000 range. It will be over Rs 35,000 for sure and probably touch Rs 42,000. Eventually people will resolve to the fact that gold is going to be expensive. While increase in price will have a negative effect for some time, it will also increase the desire in people to own pieces of gold jewellery, as it will always give a good return,” adds Himanshu Shekhar of Manoharlal Jewellers. “If there is a wedding or some other special occasion in the family, they are buying because of compulsion. Otherwise, people are waiting for the prices to come down. We supply big ticket items so we are not affected by the rise in gold price,” adds Senthil Kumar of Sumangali Jewellers.

Industry nods to compulsory hallmarking; expects more time to sell old stock

In November last year, Union Minister for Consumer Affairs, Food and Public Distribution Ram Vilas Paswan said that of hallmarking of gold jewellery and artefacts will be made mandatory across the country from January 15, 2021 to ensure purity of the precious metal. The decision will come into effect after a year, making it compulsory for all the jewellers to register with the Bureau of Indian Standards (BIS) and sell only hallmarked gold jewellery and artefacts. Gold hallmarking is a purity certification of the precious metal and is voluntary in nature at present. The BIS is already running a hallmarking scheme for gold jewellery since April 2000 and around 40 per cent of gold jewellery is being hallmarked currently. Jewellers and retailers will be given one year time to exhaust their existing stocks. The decision was taken in light of protecting consumers’ interest, mainly in small cities and villages to ensure that they purchase pure gold jewellery. “We welcome compulsory hallmarking but our only request is to give us more time. Right now they have given us 12 months, but we would require 18-24 months, so that every jeweller is able to dispose off his non-hallmarked jewellery. It will take close to 2 years to replenish old stock with hallmarked pieces. Along with hallmarking for 14, 18 and 22, it should be made compulsory for 20, 23 and 24 as well. We also have to have a dialogue with the ministry of consumer affairs as to how it will be implemented as there are not too many hallmarking centres in the country yet,” adds Padmanabhan.

The Bureau of Indian Standards (BIS) has formulated standards for hallmarking gold jewellery in three grades -- 14 carat, 18 carat and 22 carat. The minister also informed that government may make it mandatory for retailers to display prices of these three quality grades at their shops. At present, there are 877 assaying and hallmarking centres in 234 district locations and 26,019 jewellers have taken BIS registration. However, the government targets to open more hallmarking centres in all districts of the country and register all jewellers during this one year window. “Mandatory hallmarking will affect small players in a big way because they are not quality conscious. In any of the big shows, there is still a huge demand for gold jewellery which is not 22 kt as is. There are people who sell jewellery with 80 per cent purity saying that it is only 80 per cent pure, and there are people who sell 22 kt gold but with a melting purity of 80 per cent. Though there is full disclosure, one thing is clear – you can’t fool people anymore ,” adds Shekhar. Consumer awareness as far as hallmarked gold is concerned is still very low, especially in rural areas. There are around 200,000 jewellers in this country and approximately only around 26,000 jewellers are registered with BIS. Making hallmarking compulsory is set to give way to more consumer awareness and also decrease the extent of fraudulent practices wherein jewellers are selling less carat jewellery in the pretext of them being hallmarked. “We have been selling hallmarked jewellery for so many years. Making it compulsory only has positive outcomes,” adds Jagwani.

Job cuts rampant; artisans to further lose jobs

The increase in import duty has led to many problems in the industry. As people have been embracing a wait and watch approach to buy jewellery, jewellers are looking at cutting down their workforce. The reduction in demand for gold jewellery has led many jewellers to lay off karigars as they are unable to pay them. Almost 1 crore workers are employed by jewellery manufacturers. Owing to the ongoing issues, many manufacturing units are closing down. Almost 10 per cent of the workforce has already left the industry in search of other livelihoods and this is not a number that is negligible. “The small exporters are not interested in all the paper work involved when it comes to exporting and because of that their businesses are affected and hence they are not able to maintain their workforce,” says Sabysachi Ray, Executive Director, GJEPC. Close to 1.5 lakh workers who handcraft gold jewellery left to their native places from Gujarat right before festive and wedding season. Increase in duty coupled with high gold prices and weak rupee has led to this recession – the approach is quite simple, where 6 workers are required, 3 are retained instead and those who are retained don’t have enough work. The jewellery industry is going through a dilemma – whether to retain their workers or to sustain themselves. Without government’s inclination to help with the policies and unless the gold price stabilizes, the industry will witness more job losses.

Liquidity remains an Issue

The industry has been facing a large liquidity crisis as banks have not been forthcoming in lending loans to jewellers. Banks are not exposing themselves to small and medium scale companies due to insufficient collateral for working capital loans. The lack of funds has really pushe many small and midscale players in a bottleneck situation, as they are not able to operate in an efficient way. “The industry is perfect. It is only 2-3 per cent of players who defaulted that too not in the gold jewellery industry but the diamond industry. Most players are hardworking and disciplined, they pay their taxes, yet we are punished for our honesty by the banks. Even though the finance ministry has been asking banks to lend money to this industry, banks have completely ignored the gems and jewellery industry. A few jewellers have gone bankrupt, some have declared insolvency and some have committed frauds – there have been some defects in their audits. We are willing to sit with the banks and discuss how we can streamline the process, but they are not ready to hear us out,” adds Padmanabhan

Exports tumble, Commerce Ministry seeks budgetary relief

The overall gross exports of gems andjewellery declined by 5.30% to $27.69billion during April to December 2019 as compared to $29.23 billion during the same period in 2018. The overall gross import of gems and jewellery in April to December 2019 showed a decline of 6.52% to $18.68 billion from $19.98 billion registered during April to December 2018. “High import duty is an issue. Whenever I buy gold from a nominated agency, I have to export it within 90 days and the money has to come within 180 days from the day of exports. So it is a 270 day cycle. So the day I buy the gold, I have to pay 12.5 per cent plus 3 per cent – so I have to pay 15.5 per cent of the total gold price to the bank. So essentially, the money is blocked for 270 days. If every 30 days, I do one export, within say 5 months, my entire capital is gone to just the banks. So if the import duty doesn’t decrease, the issue of capital blockage will continue to affect the jewellers. Nominated agencies are also not willing to give gold to the exporters, because it is a very tedious process and there is a lot of paper work . So if these issues are addressed, then there is a huge potential in the export front. Banks should also give more gold metal loans to exporters,” says Ray. The commerce ministry has sought reduction in the import duty on gold in the forthcoming budget with a view to pushing exports and manufacturing of the gems and jewellery sector. In its budget proposals, the ministry has suggested its finance counterpar to consider a significant reduction in the import duty on the yellow metal. India’s gold imports, which have a bearing on the current account deficit (CAD), fell about 7 percent to $ 20.57 billion during April-November period of the ongoing financial year, according to the commerce ministry data. Imports of the yellow metal stood at $ 22.16 billion in the same period of 2018-19. Industry experts claim that businesses in the sector are shifting their manufacturing bases to neighbouring countries due to this high duty. Gems and jewellery exports declined about 1.5 per cent to $ 20.5 billion in April-November this fiscal. The country’s gold imports dipped about 3 per cent in value terms to $ 32.8 billion in 2018-19. The CAD narrowed to 0.9 per cent of GDP or $ 6.3 billion in July-September, 2019-20 from 2.9 per cent or $19 billion in same period last year, according to the RBI data.

A further hike on GST is on the cards

After the GST Council meeting in December last year, there is a rumour that GST may be further hiked from 3 per cent to 5 per cent. If GST is increased, the effects on the industry will be disastrous according to jewellers. “They should reduce the GST rate or leave it at what it is. If they decide to increase, it will be a total catastrophe. The current GST is amounting to 100 Rs per gram which itself is a lot ,” adds Senthil. According to World Gold Council (WGC), there has been a 32 per cent decline in India’s jewellery demand at 101.6 tonnes for July– September 2019, against 148.8 tonnes for the corresponding quarter last year. WGC also reported an overall decline of 5.3 per cent to 395.6 tonnes for January–September 2019, against 417.9 tonnes reported for the same period last year. If more GST is levied, the overall tax incidence will work out to 15.5 per cent, a portion of which in turn will be levied on the consumer, making them more skeptical about buying jewellery. “There is already a 12.5 per cent duty and 3 per cent GST. Gold from banks is always expensive and even the organized players are feeling the pinch. Consumers are already looking at GST as a dampener, a further hike will keep them away from stores and this will lead the industry to not comply with the policies,” adds Mansukh.

Tech not disrupting; consumers still want to touch & feel their jewellery

Jewellers in India are not utilising data in an effective way. In that sense both retailers and consumers have not hit the level of maturity to drive their entire business to augmented reality. While other sectors are seeing a significant amount of their sales driven by augmented and virtual reality, there is still a lot of time till consumers are warmed up to the idea of buying high value items like jewellery buy merely looking at it on a screen. “Because of the grey area in our industry, lot of data is not captured. Machine intelligence can only work if the data is fed in. If you are averse to collecting that data, he cannot use AI in his favour. Big players have been able to tap into it. We use AI in a big way and we also use analytics. But the problem remains – how to ask the end user, who is personally present at your store, for information in a manner which is not offensive? And then how do you feed it in? The entire ecosystem has to be created,” adds Himanshu. Indian women want to wear their jewellery and see. “This is definitely still a touch and feel market. Jewellery is not an impulse purchase,” adds Senthil