Jewellery sales in India will experience slower growth in the period 2013 to 2016 than in the period 2009 to 2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. India is a policy mess and will remain so for the foreseeable future. India will stumble along for the remainder of this decade because of glaring structural deficiencies such as troublesome inflation and the current account deficit, which remains vulnerable to poor policy decisions and business-culture problems. We believe Indian culture is greatly responsible for the country growing below its potential GDP. Nevertheless, the 5 to 7 per cent annual GDP growth rate guarantees that India will become the next China in the 2020s because of its gigantic population, reports Equity Communications. Indian Jeweller brings you the excerpt of this report and an interview with Vaishali Banerjee, Country Manager, Platinum Guild International. %% India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country will remain the most important market for precious jewellery in terms of potential for many years to come. For one, demand for precious jewellery is already formidable because of strong cultural traditions and yet more than 90 per cent of adults in India possess wealth valued below US$10,000. With further economic growth, a large number of Indians will move to higher wealth bands and this will lead to an acceleration of precious jewellery consumption. However, that is a story for the future. %% In the present, consumption of precious jewellery in India gained momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation, encouraged by stronger economic growth and lower inflation. Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic growth is now weaker and Indian consumers are currently battling higher inflation. %% Demand for gold jewellery was strongest in the first half of the year, 2013 corresponding with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by 4.3 per cent to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price of gold. When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred. As a result, volume demand has been quite weak in the second half of 2012. Demand for diamond jewellery grew at the slowest pace in recent yearsafter consumer budgets were shifted from other jewellery products to augment gold jewellery purchases. %% In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive. %%

{{Outlook of Gold Jewellery and Diamond Jewellery}}$$ Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 2009-2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected gradual rise in the number of middle class consumers. %% Demand for gold jewellery is very strong because of cultural preferences, including adornment plus investment factor - 81 to 86 percent of jewellery retail sales are gold jewellery products (22 to 24 carat pure gold preferred because easier to liquidate). There is a culture of buying gold during auspicious occasion of Diwali, AkshayaTritiya, Dussehra and also during weddings. In rural India, farmers typically buy gold jewellery after every successful harvesting season as it is the best form of investment for them. Gold is also a natural hedge against inflation. %% Jewellery fashion changes seasonally leading to higher product obsolescence - slow moving jewellery at the tail end of seasons, therefore significant recycling may reduce new sales - possibly up to ten percent. %% Sales of higher priced jewellery are supported by the introduction of schemes that enable consumers to make advance payments in monthly installments. Consumers purchase often discounted jewellery at the completion of the installment period. %% Increasing number of consumers (20-30 per cent) augmenting gold purchases with diamond jewellery purchases. Diamond jewellery has a stronger adornment factor - diamond jewellery set in lower 18 karat gold (diamond necklaces very popular). Platinum-setting gaining share of diamond jewellery sales - now at 20-25 per cent of diamond jewellery sales. %% Jewellery brands recent phenomenon but very popular with the youths in metropolitan cities - a globally connected youth market is revolutionisingjewellery consumption in India. Demand for fashion jewellery on the rise. %% Retail sales of gold jewellery in India have tracked increases in the price of gold because of the strong adornment plus investment demand factor. Volumes change from year to year depending on consumer economic sentiment but significant gold price inflation in recent years had put massive pressure on consumer demand. As a result, gold grammages for jewellery pieces were trending downwards up until the significant plunge in gold prices in April 2013. %% Retail Sales of Diamond Jewellery Purchases of diamond jewellery are comparatively complex because they require at least passing knowledge of the 4Cs of diamond jewellery - colour, clarity, cut and carat. Without doubt, this has been a significant barrier to sales growth in India and other nascent diamond markets since diamond jewellery is traditionally expensive. Nevertheless, establishment of organised retail chains in India has given Indian jewellers the platform to educate consumers about diamond jewellery. Furthermore, the introduction of certified diamonds has increased trust and made diamond valuations more transparent. Indian diamond industry players are taking diamonds to the mainstream, allowing people of most economic levels to purchase diamond jewellery. Jewellery manufacturers are innovating and producing fashionable diamond jewellery which is cheap by traditional world standards but targeted at the middle class in India where demand for such products - diamond accented jewellery - is strong and growing in leaps and bounds. %%

There is a shift in consumer preference to low-priced everyday diamond jewellery, which is about 50 percent cheaper than event-driven diamond jewellery and also cheaper than pure gold jewellery. Everyday jewellery cannot be expensive jewellery. Trendy lightweight designs, guaranteed buy-back schemes, transparent pricing, and availability of quality certification have all boosted sales. The quality of cheap diamond jewellery produced has also improved dramatically in the last three years and we believe it will soon debut on the world stage. India has a 32 percent urban population. As a result, diamond jewellery sales are very minimal in rural areas where gold jewellery is extremely dominant. Diamond jewellery sales are stronger in the larger and wealthier cities and decline rapidly as we move towards rural India. %% {{Jewellery Retailing Landscape Highly Segmented}} $$ India is modernising its retail landscape. Traditionally, Indians go to the preferred and trusted neighbourhoodjeweller for their jewellery requirements. However, this is gradually changing with the emergence of numerous regional retail chains and a sprinkling of countrywide retail chains. %% Industry Profile:$$ • India continues to modernize and urbanize its retail model.$$ •New regulations, duties and taxes that favour formal business operations - materials sourcing and business finance.$$ • Input costs increasing more than 200 per cent in five years.$$ • Competition for limited quality retail space.$$ • Consumer preference for hallmarked and certified jewellery is fast becoming standard - retail brands.$$ The dominant profile of business in India is low margins and high volumes. Margins continue to be under severe pressure owing to a steep rise in commodity prices and steep competition. For this reason, the jewellery in India will have to be more aggressive in its push for large-scale adoption of branded jewellery as this will create space for more sustainable margins in the sector. Fortunately, fashion conscious youths have shown strong appetite for branded jewellery and this has provided a much needed pull-factor in the demand for branded jewellery and establishment of jewellery retail brands. Nevertheless, the Indian market remains very difficult for foreigners to penetrate because:$$ • Weddings and Cultural Festivals are key consumption drivers - demand is very traditional with product preferences varying from region to region and season to season.$$ •Retail landscape underdeveloped - extremely limited quality real estate available to foreigners for the establishment of profitable store networks.$$ • Unusual sales methods - trade-ins, discounts and buy-back schemes popular because of adornment plus investment factor and seasonal consumption of jewellery.$$ • Restrictive tariff arrangements on imported jewellery and luxury - margins for jewellery are already comparatively lower %% {{2013 Interim Review of Jewellery Market }} $$ 1. The gold price plunged and released pent up demand for gold jewellery. When the price of gold first plunged to levels last seen in 2010, consumers of gold jewellery in key markets quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and therefore expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred and probably will not occur in the foreseeable future. As a result, we expect investment demand for gold jewellery to remain muted going forward. %%

2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country’s national accounts position $$ • At least 20 per cent of all gold imports into India must be for re-export.$$ • 20 per cent of all gold imports to be retained in customs bonded warehouses.$$ • Fresh imports of gold allowed only after the exports have taken place to the extent of at least 75 per cent of gold remaining in the customs bonded warehouse. $$ • Customs duty on gold imports hiked from 8 per cent to 10 per cent and on imported gold jewellery from 10 per cent to 15 per cent.$$ • Gold imports in any form for domestic use shall be made available only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers.$$ • Gold for domestic use shall be made available only after full upfront cash payment $$ • Ban on import of gold coins and bars for investment purposes $$ {{Implications for Jewellery Industry}}$$ •Retailers with significant export business to come out ahead since steady availability of gold are ensured, including better financing terms.$$ • Informal businesses to be further marginalized from official raw materials procurement channels.$$ • Export Jewellery businesses have become crucial again - management attention to likely shift from domestic expansions to foreign expansions (More exports required to grow domestic business).$$ • New procurement rules that outlaw gold loans to increase pressure on finance costs, cash-flow management to require more scrutiny.$$ •Pressure on retailers to push more diamond jewellery, which has, better margins.%% Light weight gold and diamond jewellery pieces also an option Essentially, the government of India is trying to disrupt India's famous love-affair with gold because of its negative impact on the country's current account balance. Gold contributed nearly 30 per cent of India's trade deficit during 2009-10 to 2011-12. Indian consumers put money into gold because they trust it much more than they do banking products offered by the country's financial institutions. Furthermore, as much as 42.4 per cent of India's GDP is believed to be in the underground economy, up from 27.4 per cent in the pre-reforms period. Gold provides liquidity for the untaxed underground economy in India. Put simply, the new rules state that gold imports for domestic purposes cannot be increased without a similar increase in gold imports for re-export purposes. As such, there are concerns that current gold jewellery exports are not enough to cover actual current domestic demand for gold jewellery. Nevertheless, a cursory analysis of gold import and export data provided by the Gems and Jewellery Promotion Council of India suggests that gold exports are adequate to cover domestic demand for gold jewellery. Therefore, we believe the new policy environment will ultimately lead to further realignment of the jewellery industry in India to the benefit of well positioned jewellery businesses - those with significant export operations plus appealing domestic jewellery retail brands. %% Jewellery products are discretionary goods whose demand fundamentals are at the mercy of consumer economic sentiment. If consumers believe the economy is healthy, they are more likely to absorb rising prices of discretionary goods. When economic sentiment is weak, consumers purchase fewer discretionary goods. In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive.

Earlier in 2013, consumers in India took advantage of the unprecedented slump in gold prices to massively increase gold jewellery purchases, especially for cultural gifting purposes. Furthermore, since jewellery purchases occur on budgets, budgets were shifted from other jewellery products to augment gold jewellery purchases. For the last quarter of 2013, consumers shifted to lighter gold jewellery products in light of the prevailing economic conditions that have kept gold prices higher in India. On the other hand, farmers in India appear to have had a good harvest and this always boosts gold jewellery sales in addition to strong seasonal demand for weddings and festivals. %% {{Jewellery Product Preferences Gold Jewellery V/s Diamond Jewellery}} $$ Demand for gold jewellery is steeped in tradition that goes back more than a thousand years. That is not about to change. Therefore, gold jewellery sales will still experience volume growth subject to a better macro-economic environment and stronger disposable incomes. On the whole, Indian society is modernizing and becoming less traditional. Consumers have shown a willingness to amplify traditional demand for gold jewellery with purchases of jewellery made from other precious materials like diamonds and platinum. At steady gold prices, demand for such products will grow faster than demand for gold jewellery products simply because it is still in the nascent stage. Behind this revolution in consumption patterns is the large population of young people in India using internet technology to stay in tune with the world. As a result, the Indian young adult population in the major cities is fast become sophisticated and increasingly becoming less satisfied with plain gold jewellery. Younger jewellery consumers in India care more about design, style and seasonal trends. For this reason, branding, marketing and product placement have become important. %% Diamond jewellery is actually not a great financial investment as more consumers in India are starting to find out. We believe this will likely impact the pace of diamond jewellery adoption by Indian consumers going forward. For the most part, diamonds of the cheaper variety are becoming more prevalent within day-to-day jewellery pieces as they offer flexibility in terms of style and colour, often adding a more contemporary feel to a look or outfit. We fully expect movement of diamond jewellery consumption away from the adornment plus investment category and towards the adornment only category. Retailers have been trying to grow share of diamond jewellery to at least 40 per cent of sales as this would greatly improve profit margins. However, the goal has so far proved elusive because gold jewellery sales have also been growing at a remarkable pace, fuelled by significant gold price inflation. Let us see what happens with steadier and lower gold prices. %% {{Forecast for 2014}} $$ Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected rise in the number of middle class consumers. Indian jewellers are raising money on the local stock exchange and using proceeds for raw material procurement and store expansions, including large format stores across the country. Recycling of gold jewellery is also expected to increase in the coming years because jewellery designs are becoming stale faster. Slow moving jewellery at the tail end of seasons is recreated into new designs. %%

The product mix for jewellery retailers is a key determinant of profitability. Gold margins are standardized because of adornment plus investment factor. However, quest for greater margins is driving diversification from gold jewellery products. Demand for gold jewellery remains very strong because of cultural traditions. Gold jewellery sales - for weddings, in particular - will continue to generate volume growth for jewellery retailers. Platinum and diamond jewellery sales will generate margin growth. The shift to more profitable diamond jewellery has been smooth because India is the world's dominant processor of rough diamonds, with a monopoly position in the processing of small size and small value diamonds. The local diamond industry already has massive stocks of polished diamonds therefore it has been easier www.diamondshades.com to stimulate domestic demand for diamond jewellery. %% Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery since they also lower the potency of love traditions (marriage) that typically drive jewellery consumption. With Industrialization and improved standards of living: %% •There is reduction in communal economic activity such as subsistence agriculture.$$ •There is urbanisation and standardisation of dwellings.$$ • There are increases in wages.$$ • There is increase in the status and education of women.$$ •There is introduction of superior methods of birth-control that have revolutionized the sexual habits of human-beings Industrialization and improvements in the standards of living causes a drastic shift in values from collectivism/communism to individuality. %% Unlike collectivism, which emphasizes doing things for family and community, individuality gives priority to personal freedom, self-determination and self-realization. To those operating in the Indian jewellery industry, you will be pleased to know that India is still a very long way from being fully industrialized. From the beginning of time until well into the 20th century, precious jewellery was extremely rare and costly to access in most regions of the world, making it extremely valuable as a status symbol. For much of that time, only the very wealthy could afford the luxury of precious jewellery since gold and silver were also used as circulating currency. It is no wonder then that consumption of precious jewellery receives a boost as societies become richer. When more and more people around you are becoming wealthier, it is very important to prove that you are not being left behind. However, consumption of precious jewellery also loses much of its emotional appeal as wealth becomes more spread out. When everyone around you can afford a product, it becomes redundant to prove that you have it too. %% To those operating in the jewellery industry, you will be pleased to know that this is the stage at which we find India today. Despite the Indian's government's efforts to dent growth of the retail jewellery sector in India, demand for jewellery is naturally structured to grow significantly. %% •Cultural tradition of precious jewellery consumption.$$ • Gigantic population.$$ • Gradually growing economy and improving standards of living.$$ • Leading global centre for precious jewellery manufacturing.$$ • Population regeneration supports sustainable consumption. %%

{{Outlook for Platinum Jewellery Segment}} $$ After having a detailed outlook about the gold and diamond jewellery market, the report could not be concluded without the overview of platinum jewellery market. Priyanka Desai of Indian Jeweller magazine spoke withVaishali Banerjee, Country Manager, Platinum Guild India to know what the future holds for platinum jewellery segment. %% Talking about the future forecast, Banerjee said, “The outlook for platinum jewellery in India is quite positive, despite the current churn in the economy. Fundamentally India’s jewellery market is an integral part of its ethos and in addition it has a growing young population. Our consumer research and market reports suggest awareness for platinum is very high among younger consumers. They buy or gift platinum for special occasions; it is established as a precious gift of love. As the awareness and knowledge deepens, the market should see higher growth.” %% When asked to throw light on the growth of platinum trend, she stated, “Last year, as per the consumer off take (retail sales) growth has been between 26 to 30 per cent (differs from region to region). We will continue to focus on our largest segment – platinum love bands which have grown by 35 per cent this year. The success of the Platinum Day of Love programme has also created a lot of consumer awareness. The men’s jewellery seems to be a promising category for the season and is seeing an encouraging response. We are currently evaluating which should be the next segment to grow the market in the New Year and that will be the area of focus.India has a massive growth potential and headroom for further development, and it is coming from a low base. So we expect that type of growth to continue. Since 2008, the platinum market in India has grown over 600 per cent.” %% While throwing light on the key market trends, she concludes by explaining, “The younger generation identifies strongly with the precious white metal. The inherent properties of platinum, its eternal nature, rarity and modernity are the key motivators for the young. India is a country which has close to 70 per cent of its population less than 45 years which works to platinum’s advantage, as platinum appeals to the younger audience between 18 to 35 women and men, upper/middle class living in a metro/ mini metro. There is a growing trend of young brides who are looking at platinum as a part of their wedding trousseau. Also, the increasing desire for men’s jewellery presents an additional opportunity for platinum. Young men today are not only looking at bands in platinum, but are also taking to platinum chains, and bracelets. Platinum provides an opportunity to offer something new to existing customers and attracts new customers who are keen to buy platinum jewellery. Platinum is purchased as a gift of love could be between couples, parent daughter or child, siblings, etc or as self reward (self purchase) and normally platinum is symbolic of milestones occasions in a consumers life. There are many occasions in a woman’s life where she gets jewellery and platinum is meant for some of them.” %%

Jewellery sales in India will experience slower growth in the period 2013 to 2016 than in the period 2009 to 2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. India is a policy mess and will remain so for the foreseeable future. India will stumble along for the remainder of this decade because of glaring structural deficiencies such as troublesome inflation and the current account deficit, which remains vulnerable to poor policy decisions and business-culture problems. We believe Indian culture is greatly responsible for the country growing below its potential GDP. Nevertheless, the 5 to 7 per cent annual GDP growth rate guarantees that India will become the next China in the 2020s because of its gigantic population, reports Equity Communications. Indian Jeweller brings you the excerpt of this report and an interview with Vaishali Banerjee, Country Manager, Platinum Guild International. %% India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country will remain the most important market for precious jewellery in terms of potential for many years to come. For one, demand for precious jewellery is already formidable because of strong cultural traditions and yet more than 90 per cent of adults in India possess wealth valued below US$10,000. With further economic growth, a large number of Indians will move to higher wealth bands and this will lead to an acceleration of precious jewellery consumption. However, that is a story for the future. %% In the present, consumption of precious jewellery in India gained momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation, encouraged by stronger economic growth and lower inflation. Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic growth is now weaker and Indian consumers are currently battling higher inflation. %% Demand for gold jewellery was strongest in the first half of the year, 2013 corresponding with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by 4.3 per cent to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price of gold. When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred. As a result, volume demand has been quite weak in the second half of 2012. Demand for diamond jewellery grew at the slowest pace in recent yearsafter consumer budgets were shifted from other jewellery products to augment gold jewellery purchases. %% In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive. %%

{{Outlook of Gold Jewellery and Diamond Jewellery}}$$ Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 2009-2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected gradual rise in the number of middle class consumers. %% Demand for gold jewellery is very strong because of cultural preferences, including adornment plus investment factor - 81 to 86 percent of jewellery retail sales are gold jewellery products (22 to 24 carat pure gold preferred because easier to liquidate). There is a culture of buying gold during auspicious occasion of Diwali, AkshayaTritiya, Dussehra and also during weddings. In rural India, farmers typically buy gold jewellery after every successful harvesting season as it is the best form of investment for them. Gold is also a natural hedge against inflation. %% Jewellery fashion changes seasonally leading to higher product obsolescence - slow moving jewellery at the tail end of seasons, therefore significant recycling may reduce new sales - possibly up to ten percent. %% Sales of higher priced jewellery are supported by the introduction of schemes that enable consumers to make advance payments in monthly installments. Consumers purchase often discounted jewellery at the completion of the installment period. %% Increasing number of consumers (20-30 per cent) augmenting gold purchases with diamond jewellery purchases. Diamond jewellery has a stronger adornment factor - diamond jewellery set in lower 18 karat gold (diamond necklaces very popular). Platinum-setting gaining share of diamond jewellery sales - now at 20-25 per cent of diamond jewellery sales. %% Jewellery brands recent phenomenon but very popular with the youths in metropolitan cities - a globally connected youth market is revolutionisingjewellery consumption in India. Demand for fashion jewellery on the rise. %% Retail sales of gold jewellery in India have tracked increases in the price of gold because of the strong adornment plus investment demand factor. Volumes change from year to year depending on consumer economic sentiment but significant gold price inflation in recent years had put massive pressure on consumer demand. As a result, gold grammages for jewellery pieces were trending downwards up until the significant plunge in gold prices in April 2013. %% Retail Sales of Diamond Jewellery Purchases of diamond jewellery are comparatively complex because they require at least passing knowledge of the 4Cs of diamond jewellery - colour, clarity, cut and carat. Without doubt, this has been a significant barrier to sales growth in India and other nascent diamond markets since diamond jewellery is traditionally expensive. Nevertheless, establishment of organised retail chains in India has given Indian jewellers the platform to educate consumers about diamond jewellery. Furthermore, the introduction of certified diamonds has increased trust and made diamond valuations more transparent. Indian diamond industry players are taking diamonds to the mainstream, allowing people of most economic levels to purchase diamond jewellery. Jewellery manufacturers are innovating and producing fashionable diamond jewellery which is cheap by traditional world standards but targeted at the middle class in India where demand for such products - diamond accented jewellery - is strong and growing in leaps and bounds. %%

There is a shift in consumer preference to low-priced everyday diamond jewellery, which is about 50 percent cheaper than event-driven diamond jewellery and also cheaper than pure gold jewellery. Everyday jewellery cannot be expensive jewellery. Trendy lightweight designs, guaranteed buy-back schemes, transparent pricing, and availability of quality certification have all boosted sales. The quality of cheap diamond jewellery produced has also improved dramatically in the last three years and we believe it will soon debut on the world stage. India has a 32 percent urban population. As a result, diamond jewellery sales are very minimal in rural areas where gold jewellery is extremely dominant. Diamond jewellery sales are stronger in the larger and wealthier cities and decline rapidly as we move towards rural India. %% {{Jewellery Retailing Landscape Highly Segmented}} $$ India is modernising its retail landscape. Traditionally, Indians go to the preferred and trusted neighbourhoodjeweller for their jewellery requirements. However, this is gradually changing with the emergence of numerous regional retail chains and a sprinkling of countrywide retail chains. %% Industry Profile:$$ • India continues to modernize and urbanize its retail model.$$ •New regulations, duties and taxes that favour formal business operations - materials sourcing and business finance.$$ • Input costs increasing more than 200 per cent in five years.$$ • Competition for limited quality retail space.$$ • Consumer preference for hallmarked and certified jewellery is fast becoming standard - retail brands.$$ The dominant profile of business in India is low margins and high volumes. Margins continue to be under severe pressure owing to a steep rise in commodity prices and steep competition. For this reason, the jewellery in India will have to be more aggressive in its push for large-scale adoption of branded jewellery as this will create space for more sustainable margins in the sector. Fortunately, fashion conscious youths have shown strong appetite for branded jewellery and this has provided a much needed pull-factor in the demand for branded jewellery and establishment of jewellery retail brands. Nevertheless, the Indian market remains very difficult for foreigners to penetrate because:$$ • Weddings and Cultural Festivals are key consumption drivers - demand is very traditional with product preferences varying from region to region and season to season.$$ •Retail landscape underdeveloped - extremely limited quality real estate available to foreigners for the establishment of profitable store networks.$$ • Unusual sales methods - trade-ins, discounts and buy-back schemes popular because of adornment plus investment factor and seasonal consumption of jewellery.$$ • Restrictive tariff arrangements on imported jewellery and luxury - margins for jewellery are already comparatively lower %% {{2013 Interim Review of Jewellery Market }} $$ 1. The gold price plunged and released pent up demand for gold jewellery. When the price of gold first plunged to levels last seen in 2010, consumers of gold jewellery in key markets quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and therefore expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred and probably will not occur in the foreseeable future. As a result, we expect investment demand for gold jewellery to remain muted going forward. %%

2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country’s national accounts position $$ • At least 20 per cent of all gold imports into India must be for re-export.$$ • 20 per cent of all gold imports to be retained in customs bonded warehouses.$$ • Fresh imports of gold allowed only after the exports have taken place to the extent of at least 75 per cent of gold remaining in the customs bonded warehouse. $$ • Customs duty on gold imports hiked from 8 per cent to 10 per cent and on imported gold jewellery from 10 per cent to 15 per cent.$$ • Gold imports in any form for domestic use shall be made available only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers.$$ • Gold for domestic use shall be made available only after full upfront cash payment $$ • Ban on import of gold coins and bars for investment purposes $$ {{Implications for Jewellery Industry}}$$ •Retailers with significant export business to come out ahead since steady availability of gold are ensured, including better financing terms.$$ • Informal businesses to be further marginalized from official raw materials procurement channels.$$ • Export Jewellery businesses have become crucial again - management attention to likely shift from domestic expansions to foreign expansions (More exports required to grow domestic business).$$ • New procurement rules that outlaw gold loans to increase pressure on finance costs, cash-flow management to require more scrutiny.$$ •Pressure on retailers to push more diamond jewellery, which has, better margins.%% Light weight gold and diamond jewellery pieces also an option Essentially, the government of India is trying to disrupt India's famous love-affair with gold because of its negative impact on the country's current account balance. Gold contributed nearly 30 per cent of India's trade deficit during 2009-10 to 2011-12. Indian consumers put money into gold because they trust it much more than they do banking products offered by the country's financial institutions. Furthermore, as much as 42.4 per cent of India's GDP is believed to be in the underground economy, up from 27.4 per cent in the pre-reforms period. Gold provides liquidity for the untaxed underground economy in India. Put simply, the new rules state that gold imports for domestic purposes cannot be increased without a similar increase in gold imports for re-export purposes. As such, there are concerns that current gold jewellery exports are not enough to cover actual current domestic demand for gold jewellery. Nevertheless, a cursory analysis of gold import and export data provided by the Gems and Jewellery Promotion Council of India suggests that gold exports are adequate to cover domestic demand for gold jewellery. Therefore, we believe the new policy environment will ultimately lead to further realignment of the jewellery industry in India to the benefit of well positioned jewellery businesses - those with significant export operations plus appealing domestic jewellery retail brands. %% Jewellery products are discretionary goods whose demand fundamentals are at the mercy of consumer economic sentiment. If consumers believe the economy is healthy, they are more likely to absorb rising prices of discretionary goods. When economic sentiment is weak, consumers purchase fewer discretionary goods. In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive.

Earlier in 2013, consumers in India took advantage of the unprecedented slump in gold prices to massively increase gold jewellery purchases, especially for cultural gifting purposes. Furthermore, since jewellery purchases occur on budgets, budgets were shifted from other jewellery products to augment gold jewellery purchases. For the last quarter of 2013, consumers shifted to lighter gold jewellery products in light of the prevailing economic conditions that have kept gold prices higher in India. On the other hand, farmers in India appear to have had a good harvest and this always boosts gold jewellery sales in addition to strong seasonal demand for weddings and festivals. %% {{Jewellery Product Preferences Gold Jewellery V/s Diamond Jewellery}} $$ Demand for gold jewellery is steeped in tradition that goes back more than a thousand years. That is not about to change. Therefore, gold jewellery sales will still experience volume growth subject to a better macro-economic environment and stronger disposable incomes. On the whole, Indian society is modernizing and becoming less traditional. Consumers have shown a willingness to amplify traditional demand for gold jewellery with purchases of jewellery made from other precious materials like diamonds and platinum. At steady gold prices, demand for such products will grow faster than demand for gold jewellery products simply because it is still in the nascent stage. Behind this revolution in consumption patterns is the large population of young people in India using internet technology to stay in tune with the world. As a result, the Indian young adult population in the major cities is fast become sophisticated and increasingly becoming less satisfied with plain gold jewellery. Younger jewellery consumers in India care more about design, style and seasonal trends. For this reason, branding, marketing and product placement have become important. %% Diamond jewellery is actually not a great financial investment as more consumers in India are starting to find out. We believe this will likely impact the pace of diamond jewellery adoption by Indian consumers going forward. For the most part, diamonds of the cheaper variety are becoming more prevalent within day-to-day jewellery pieces as they offer flexibility in terms of style and colour, often adding a more contemporary feel to a look or outfit. We fully expect movement of diamond jewellery consumption away from the adornment plus investment category and towards the adornment only category. Retailers have been trying to grow share of diamond jewellery to at least 40 per cent of sales as this would greatly improve profit margins. However, the goal has so far proved elusive because gold jewellery sales have also been growing at a remarkable pace, fuelled by significant gold price inflation. Let us see what happens with steadier and lower gold prices. %% {{Forecast for 2014}} $$ Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected rise in the number of middle class consumers. Indian jewellers are raising money on the local stock exchange and using proceeds for raw material procurement and store expansions, including large format stores across the country. Recycling of gold jewellery is also expected to increase in the coming years because jewellery designs are becoming stale faster. Slow moving jewellery at the tail end of seasons is recreated into new designs. %%

The product mix for jewellery retailers is a key determinant of profitability. Gold margins are standardized because of adornment plus investment factor. However, quest for greater margins is driving diversification from gold jewellery products. Demand for gold jewellery remains very strong because of cultural traditions. Gold jewellery sales - for weddings, in particular - will continue to generate volume growth for jewellery retailers. Platinum and diamond jewellery sales will generate margin growth. The shift to more profitable diamond jewellery has been smooth because India is the world's dominant processor of rough diamonds, with a monopoly position in the processing of small size and small value diamonds. The local diamond industry already has massive stocks of polished diamonds therefore it has been easier www.diamondshades.com to stimulate domestic demand for diamond jewellery. %% Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery since they also lower the potency of love traditions (marriage) that typically drive jewellery consumption. With Industrialization and improved standards of living: %% •There is reduction in communal economic activity such as subsistence agriculture.$$ •There is urbanisation and standardisation of dwellings.$$ • There are increases in wages.$$ • There is increase in the status and education of women.$$ •There is introduction of superior methods of birth-control that have revolutionized the sexual habits of human-beings Industrialization and improvements in the standards of living causes a drastic shift in values from collectivism/communism to individuality. %% Unlike collectivism, which emphasizes doing things for family and community, individuality gives priority to personal freedom, self-determination and self-realization. To those operating in the Indian jewellery industry, you will be pleased to know that India is still a very long way from being fully industrialized. From the beginning of time until well into the 20th century, precious jewellery was extremely rare and costly to access in most regions of the world, making it extremely valuable as a status symbol. For much of that time, only the very wealthy could afford the luxury of precious jewellery since gold and silver were also used as circulating currency. It is no wonder then that consumption of precious jewellery receives a boost as societies become richer. When more and more people around you are becoming wealthier, it is very important to prove that you are not being left behind. However, consumption of precious jewellery also loses much of its emotional appeal as wealth becomes more spread out. When everyone around you can afford a product, it becomes redundant to prove that you have it too. %% To those operating in the jewellery industry, you will be pleased to know that this is the stage at which we find India today. Despite the Indian's government's efforts to dent growth of the retail jewellery sector in India, demand for jewellery is naturally structured to grow significantly. %% •Cultural tradition of precious jewellery consumption.$$ • Gigantic population.$$ • Gradually growing economy and improving standards of living.$$ • Leading global centre for precious jewellery manufacturing.$$ • Population regeneration supports sustainable consumption. %%

{{Outlook for Platinum Jewellery Segment}} $$ After having a detailed outlook about the gold and diamond jewellery market, the report could not be concluded without the overview of platinum jewellery market. Priyanka Desai of Indian Jeweller magazine spoke withVaishali Banerjee, Country Manager, Platinum Guild India to know what the future holds for platinum jewellery segment. %% Talking about the future forecast, Banerjee said, “The outlook for platinum jewellery in India is quite positive, despite the current churn in the economy. Fundamentally India’s jewellery market is an integral part of its ethos and in addition it has a growing young population. Our consumer research and market reports suggest awareness for platinum is very high among younger consumers. They buy or gift platinum for special occasions; it is established as a precious gift of love. As the awareness and knowledge deepens, the market should see higher growth.” %% When asked to throw light on the growth of platinum trend, she stated, “Last year, as per the consumer off take (retail sales) growth has been between 26 to 30 per cent (differs from region to region). We will continue to focus on our largest segment – platinum love bands which have grown by 35 per cent this year. The success of the Platinum Day of Love programme has also created a lot of consumer awareness. The men’s jewellery seems to be a promising category for the season and is seeing an encouraging response. We are currently evaluating which should be the next segment to grow the market in the New Year and that will be the area of focus.India has a massive growth potential and headroom for further development, and it is coming from a low base. So we expect that type of growth to continue. Since 2008, the platinum market in India has grown over 600 per cent.” %% While throwing light on the key market trends, she concludes by explaining, “The younger generation identifies strongly with the precious white metal. The inherent properties of platinum, its eternal nature, rarity and modernity are the key motivators for the young. India is a country which has close to 70 per cent of its population less than 45 years which works to platinum’s advantage, as platinum appeals to the younger audience between 18 to 35 women and men, upper/middle class living in a metro/ mini metro. There is a growing trend of young brides who are looking at platinum as a part of their wedding trousseau. Also, the increasing desire for men’s jewellery presents an additional opportunity for platinum. Young men today are not only looking at bands in platinum, but are also taking to platinum chains, and bracelets. Platinum provides an opportunity to offer something new to existing customers and attracts new customers who are keen to buy platinum jewellery. Platinum is purchased as a gift of love could be between couples, parent daughter or child, siblings, etc or as self reward (self purchase) and normally platinum is symbolic of milestones occasions in a consumers life. There are many occasions in a woman’s life where she gets jewellery and platinum is meant for some of them.” %%

Jewellery sales in India will experience slower growth in the period 2013 to 2016 than in the period 2009 to 2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. India is a policy mess and will remain so for the foreseeable future. India will stumble along for the remainder of this decade because of glaring structural deficiencies such as troublesome inflation and the current account deficit, which remains vulnerable to poor policy decisions and business-culture problems. We believe Indian culture is greatly responsible for the country growing below its potential GDP. Nevertheless, the 5 to 7 per cent annual GDP growth rate guarantees that India will become the next China in the 2020s because of its gigantic population, reports Equity Communications. Indian Jeweller brings you the excerpt of this report and an interview with Vaishali Banerjee, Country Manager, Platinum Guild International. %% India is currently number two in gold jewellery consumption by volume, number four in platinum jewellery consumption by volume and number one in diamond jewellery consumption by volume. The country will remain the most important market for precious jewellery in terms of potential for many years to come. For one, demand for precious jewellery is already formidable because of strong cultural traditions and yet more than 90 per cent of adults in India possess wealth valued below US$10,000. With further economic growth, a large number of Indians will move to higher wealth bands and this will lead to an acceleration of precious jewellery consumption. However, that is a story for the future. %% In the present, consumption of precious jewellery in India gained momentum in the aftermath of the Global Financial Crisis as Indians rode the wave of gold price inflation, encouraged by stronger economic growth and lower inflation. Consumption of precious jewellery subsequently lost momentum when the situation reversed. Economic growth is now weaker and Indian consumers are currently battling higher inflation. %% Demand for gold jewellery was strongest in the first half of the year, 2013 corresponding with the initial burst of lower gold prices. Volume demand for gold jewellery is forecast to increase by 4.3 per cent to 575.2 tonnes in 2013. Consumer demand for gold was robust from the last quarter of 2012 culminating in even stronger buying in the second quarter of 2013, following massive declines in the price of gold. When the price of gold first plunged to levels last seen in 2010, jewellery consumers quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred. As a result, volume demand has been quite weak in the second half of 2012. Demand for diamond jewellery grew at the slowest pace in recent yearsafter consumer budgets were shifted from other jewellery products to augment gold jewellery purchases. %% In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive. %%

{{Outlook of Gold Jewellery and Diamond Jewellery}}$$ Jewellery sales in India will experience slower growth in the period 2013-2016 than in the period 2009-2012. The culprits will be ongoing weakness in consumer spending which rising inflation, lower real wage growth and a poorer macro-economic environment have hit. Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected gradual rise in the number of middle class consumers. %% Demand for gold jewellery is very strong because of cultural preferences, including adornment plus investment factor - 81 to 86 percent of jewellery retail sales are gold jewellery products (22 to 24 carat pure gold preferred because easier to liquidate). There is a culture of buying gold during auspicious occasion of Diwali, AkshayaTritiya, Dussehra and also during weddings. In rural India, farmers typically buy gold jewellery after every successful harvesting season as it is the best form of investment for them. Gold is also a natural hedge against inflation. %% Jewellery fashion changes seasonally leading to higher product obsolescence - slow moving jewellery at the tail end of seasons, therefore significant recycling may reduce new sales - possibly up to ten percent. %% Sales of higher priced jewellery are supported by the introduction of schemes that enable consumers to make advance payments in monthly installments. Consumers purchase often discounted jewellery at the completion of the installment period. %% Increasing number of consumers (20-30 per cent) augmenting gold purchases with diamond jewellery purchases. Diamond jewellery has a stronger adornment factor - diamond jewellery set in lower 18 karat gold (diamond necklaces very popular). Platinum-setting gaining share of diamond jewellery sales - now at 20-25 per cent of diamond jewellery sales. %% Jewellery brands recent phenomenon but very popular with the youths in metropolitan cities - a globally connected youth market is revolutionisingjewellery consumption in India. Demand for fashion jewellery on the rise. %% Retail sales of gold jewellery in India have tracked increases in the price of gold because of the strong adornment plus investment demand factor. Volumes change from year to year depending on consumer economic sentiment but significant gold price inflation in recent years had put massive pressure on consumer demand. As a result, gold grammages for jewellery pieces were trending downwards up until the significant plunge in gold prices in April 2013. %% Retail Sales of Diamond Jewellery Purchases of diamond jewellery are comparatively complex because they require at least passing knowledge of the 4Cs of diamond jewellery - colour, clarity, cut and carat. Without doubt, this has been a significant barrier to sales growth in India and other nascent diamond markets since diamond jewellery is traditionally expensive. Nevertheless, establishment of organised retail chains in India has given Indian jewellers the platform to educate consumers about diamond jewellery. Furthermore, the introduction of certified diamonds has increased trust and made diamond valuations more transparent. Indian diamond industry players are taking diamonds to the mainstream, allowing people of most economic levels to purchase diamond jewellery. Jewellery manufacturers are innovating and producing fashionable diamond jewellery which is cheap by traditional world standards but targeted at the middle class in India where demand for such products - diamond accented jewellery - is strong and growing in leaps and bounds. %%

There is a shift in consumer preference to low-priced everyday diamond jewellery, which is about 50 percent cheaper than event-driven diamond jewellery and also cheaper than pure gold jewellery. Everyday jewellery cannot be expensive jewellery. Trendy lightweight designs, guaranteed buy-back schemes, transparent pricing, and availability of quality certification have all boosted sales. The quality of cheap diamond jewellery produced has also improved dramatically in the last three years and we believe it will soon debut on the world stage. India has a 32 percent urban population. As a result, diamond jewellery sales are very minimal in rural areas where gold jewellery is extremely dominant. Diamond jewellery sales are stronger in the larger and wealthier cities and decline rapidly as we move towards rural India. %% {{Jewellery Retailing Landscape Highly Segmented}} $$ India is modernising its retail landscape. Traditionally, Indians go to the preferred and trusted neighbourhoodjeweller for their jewellery requirements. However, this is gradually changing with the emergence of numerous regional retail chains and a sprinkling of countrywide retail chains. %% Industry Profile:$$ • India continues to modernize and urbanize its retail model.$$ •New regulations, duties and taxes that favour formal business operations - materials sourcing and business finance.$$ • Input costs increasing more than 200 per cent in five years.$$ • Competition for limited quality retail space.$$ • Consumer preference for hallmarked and certified jewellery is fast becoming standard - retail brands.$$ The dominant profile of business in India is low margins and high volumes. Margins continue to be under severe pressure owing to a steep rise in commodity prices and steep competition. For this reason, the jewellery in India will have to be more aggressive in its push for large-scale adoption of branded jewellery as this will create space for more sustainable margins in the sector. Fortunately, fashion conscious youths have shown strong appetite for branded jewellery and this has provided a much needed pull-factor in the demand for branded jewellery and establishment of jewellery retail brands. Nevertheless, the Indian market remains very difficult for foreigners to penetrate because:$$ • Weddings and Cultural Festivals are key consumption drivers - demand is very traditional with product preferences varying from region to region and season to season.$$ •Retail landscape underdeveloped - extremely limited quality real estate available to foreigners for the establishment of profitable store networks.$$ • Unusual sales methods - trade-ins, discounts and buy-back schemes popular because of adornment plus investment factor and seasonal consumption of jewellery.$$ • Restrictive tariff arrangements on imported jewellery and luxury - margins for jewellery are already comparatively lower %% {{2013 Interim Review of Jewellery Market }} $$ 1. The gold price plunged and released pent up demand for gold jewellery. When the price of gold first plunged to levels last seen in 2010, consumers of gold jewellery in key markets quickly saw this as a buying opportunity and rushed to make purchases. Many reasoned that the dip in gold prices was an anomaly and therefore expected gold prices to soon return to their long-term upward trajectory. However, this has not occurred and probably will not occur in the foreseeable future. As a result, we expect investment demand for gold jewellery to remain muted going forward. %%

2. The Reserve Bank of India announced new restrictions on gold imports into India in order to improve the country’s national accounts position $$ • At least 20 per cent of all gold imports into India must be for re-export.$$ • 20 per cent of all gold imports to be retained in customs bonded warehouses.$$ • Fresh imports of gold allowed only after the exports have taken place to the extent of at least 75 per cent of gold remaining in the customs bonded warehouse. $$ • Customs duty on gold imports hiked from 8 per cent to 10 per cent and on imported gold jewellery from 10 per cent to 15 per cent.$$ • Gold imports in any form for domestic use shall be made available only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers.$$ • Gold for domestic use shall be made available only after full upfront cash payment $$ • Ban on import of gold coins and bars for investment purposes $$ {{Implications for Jewellery Industry}}$$ •Retailers with significant export business to come out ahead since steady availability of gold are ensured, including better financing terms.$$ • Informal businesses to be further marginalized from official raw materials procurement channels.$$ • Export Jewellery businesses have become crucial again - management attention to likely shift from domestic expansions to foreign expansions (More exports required to grow domestic business).$$ • New procurement rules that outlaw gold loans to increase pressure on finance costs, cash-flow management to require more scrutiny.$$ •Pressure on retailers to push more diamond jewellery, which has, better margins.%% Light weight gold and diamond jewellery pieces also an option Essentially, the government of India is trying to disrupt India's famous love-affair with gold because of its negative impact on the country's current account balance. Gold contributed nearly 30 per cent of India's trade deficit during 2009-10 to 2011-12. Indian consumers put money into gold because they trust it much more than they do banking products offered by the country's financial institutions. Furthermore, as much as 42.4 per cent of India's GDP is believed to be in the underground economy, up from 27.4 per cent in the pre-reforms period. Gold provides liquidity for the untaxed underground economy in India. Put simply, the new rules state that gold imports for domestic purposes cannot be increased without a similar increase in gold imports for re-export purposes. As such, there are concerns that current gold jewellery exports are not enough to cover actual current domestic demand for gold jewellery. Nevertheless, a cursory analysis of gold import and export data provided by the Gems and Jewellery Promotion Council of India suggests that gold exports are adequate to cover domestic demand for gold jewellery. Therefore, we believe the new policy environment will ultimately lead to further realignment of the jewellery industry in India to the benefit of well positioned jewellery businesses - those with significant export operations plus appealing domestic jewellery retail brands. %% Jewellery products are discretionary goods whose demand fundamentals are at the mercy of consumer economic sentiment. If consumers believe the economy is healthy, they are more likely to absorb rising prices of discretionary goods. When economic sentiment is weak, consumers purchase fewer discretionary goods. In the short-term, demand for jewellery products has been stifled by higher inflation, less positive macroeconomic environment, and moves by the Indian government to force a reduction in gold and polished diamonds imports. Current conditions in India have greater negative impact on diamond jewellery sales than on gold jewellery sales since consumer demand for diamonds is more discretionary. With persistent inflation, prices for goods in India are higher and this makes jewellery less competitive.

Earlier in 2013, consumers in India took advantage of the unprecedented slump in gold prices to massively increase gold jewellery purchases, especially for cultural gifting purposes. Furthermore, since jewellery purchases occur on budgets, budgets were shifted from other jewellery products to augment gold jewellery purchases. For the last quarter of 2013, consumers shifted to lighter gold jewellery products in light of the prevailing economic conditions that have kept gold prices higher in India. On the other hand, farmers in India appear to have had a good harvest and this always boosts gold jewellery sales in addition to strong seasonal demand for weddings and festivals. %% {{Jewellery Product Preferences Gold Jewellery V/s Diamond Jewellery}} $$ Demand for gold jewellery is steeped in tradition that goes back more than a thousand years. That is not about to change. Therefore, gold jewellery sales will still experience volume growth subject to a better macro-economic environment and stronger disposable incomes. On the whole, Indian society is modernizing and becoming less traditional. Consumers have shown a willingness to amplify traditional demand for gold jewellery with purchases of jewellery made from other precious materials like diamonds and platinum. At steady gold prices, demand for such products will grow faster than demand for gold jewellery products simply because it is still in the nascent stage. Behind this revolution in consumption patterns is the large population of young people in India using internet technology to stay in tune with the world. As a result, the Indian young adult population in the major cities is fast become sophisticated and increasingly becoming less satisfied with plain gold jewellery. Younger jewellery consumers in India care more about design, style and seasonal trends. For this reason, branding, marketing and product placement have become important. %% Diamond jewellery is actually not a great financial investment as more consumers in India are starting to find out. We believe this will likely impact the pace of diamond jewellery adoption by Indian consumers going forward. For the most part, diamonds of the cheaper variety are becoming more prevalent within day-to-day jewellery pieces as they offer flexibility in terms of style and colour, often adding a more contemporary feel to a look or outfit. We fully expect movement of diamond jewellery consumption away from the adornment plus investment category and towards the adornment only category. Retailers have been trying to grow share of diamond jewellery to at least 40 per cent of sales as this would greatly improve profit margins. However, the goal has so far proved elusive because gold jewellery sales have also been growing at a remarkable pace, fuelled by significant gold price inflation. Let us see what happens with steadier and lower gold prices. %% {{Forecast for 2014}} $$ Demand for gold in jewellery manufacturing should oscillate in the 500-650 tonnes per year range, on the back of continued modernisation of sales channels in India and the expected rise in the number of middle class consumers. Indian jewellers are raising money on the local stock exchange and using proceeds for raw material procurement and store expansions, including large format stores across the country. Recycling of gold jewellery is also expected to increase in the coming years because jewellery designs are becoming stale faster. Slow moving jewellery at the tail end of seasons is recreated into new designs. %%

The product mix for jewellery retailers is a key determinant of profitability. Gold margins are standardized because of adornment plus investment factor. However, quest for greater margins is driving diversification from gold jewellery products. Demand for gold jewellery remains very strong because of cultural traditions. Gold jewellery sales - for weddings, in particular - will continue to generate volume growth for jewellery retailers. Platinum and diamond jewellery sales will generate margin growth. The shift to more profitable diamond jewellery has been smooth because India is the world's dominant processor of rough diamonds, with a monopoly position in the processing of small size and small value diamonds. The local diamond industry already has massive stocks of polished diamonds therefore it has been easier www.diamondshades.com to stimulate domestic demand for diamond jewellery. %% Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery Industrialization and improvements in the standard of living reduce long-term consumption of precious jewellery since they also lower the potency of love traditions (marriage) that typically drive jewellery consumption. With Industrialization and improved standards of living: %% •There is reduction in communal economic activity such as subsistence agriculture.$$ •There is urbanisation and standardisation of dwellings.$$ • There are increases in wages.$$ • There is increase in the status and education of women.$$ •There is introduction of superior methods of birth-control that have revolutionized the sexual habits of human-beings Industrialization and improvements in the standards of living causes a drastic shift in values from collectivism/communism to individuality. %% Unlike collectivism, which emphasizes doing things for family and community, individuality gives priority to personal freedom, self-determination and self-realization. To those operating in the Indian jewellery industry, you will be pleased to know that India is still a very long way from being fully industrialized. From the beginning of time until well into the 20th century, precious jewellery was extremely rare and costly to access in most regions of the world, making it extremely valuable as a status symbol. For much of that time, only the very wealthy could afford the luxury of precious jewellery since gold and silver were also used as circulating currency. It is no wonder then that consumption of precious jewellery receives a boost as societies become richer. When more and more people around you are becoming wealthier, it is very important to prove that you are not being left behind. However, consumption of precious jewellery also loses much of its emotional appeal as wealth becomes more spread out. When everyone around you can afford a product, it becomes redundant to prove that you have it too. %% To those operating in the jewellery industry, you will be pleased to know that this is the stage at which we find India today. Despite the Indian's government's efforts to dent growth of the retail jewellery sector in India, demand for jewellery is naturally structured to grow significantly. %% •Cultural tradition of precious jewellery consumption.$$ • Gigantic population.$$ • Gradually growing economy and improving standards of living.$$ • Leading global centre for precious jewellery manufacturing.$$ • Population regeneration supports sustainable consumption. %%

{{Outlook for Platinum Jewellery Segment}} $$ After having a detailed outlook about the gold and diamond jewellery market, the report could not be concluded without the overview of platinum jewellery market. Priyanka Desai of Indian Jeweller magazine spoke withVaishali Banerjee, Country Manager, Platinum Guild India to know what the future holds for platinum jewellery segment. %% Talking about the future forecast, Banerjee said, “The outlook for platinum jewellery in India is quite positive, despite the current churn in the economy. Fundamentally India’s jewellery market is an integral part of its ethos and in addition it has a growing young population. Our consumer research and market reports suggest awareness for platinum is very high among younger consumers. They buy or gift platinum for special occasions; it is established as a precious gift of love. As the awareness and knowledge deepens, the market should see higher growth.” %% When asked to throw light on the growth of platinum trend, she stated, “Last year, as per the consumer off take (retail sales) growth has been between 26 to 30 per cent (differs from region to region). We will continue to focus on our largest segment – platinum love bands which have grown by 35 per cent this year. The success of the Platinum Day of Love programme has also created a lot of consumer awareness. The men’s jewellery seems to be a promising category for the season and is seeing an encouraging response. We are currently evaluating which should be the next segment to grow the market in the New Year and that will be the area of focus.India has a massive growth potential and headroom for further development, and it is coming from a low base. So we expect that type of growth to continue. Since 2008, the platinum market in India has grown over 600 per cent.” %% While throwing light on the key market trends, she concludes by explaining, “The younger generation identifies strongly with the precious white metal. The inherent properties of platinum, its eternal nature, rarity and modernity are the key motivators for the young. India is a country which has close to 70 per cent of its population less than 45 years which works to platinum’s advantage, as platinum appeals to the younger audience between 18 to 35 women and men, upper/middle class living in a metro/ mini metro. There is a growing trend of young brides who are looking at platinum as a part of their wedding trousseau. Also, the increasing desire for men’s jewellery presents an additional opportunity for platinum. Young men today are not only looking at bands in platinum, but are also taking to platinum chains, and bracelets. Platinum provides an opportunity to offer something new to existing customers and attracts new customers who are keen to buy platinum jewellery. Platinum is purchased as a gift of love could be between couples, parent daughter or child, siblings, etc or as self reward (self purchase) and normally platinum is symbolic of milestones occasions in a consumers life. There are many occasions in a woman’s life where she gets jewellery and platinum is meant for some of them.” %%