Gems and Jewellery

Background

The two major segments of the gems & jewellery (GJ) business in India are gold and diamond jewellery. The GJ industry has an important role in the Indian economy. While a predominant portion of gold jewellery manufactured in India is for domestic consumption, a large portion of rough, uncut diamonds processed in the form of either polished diamonds or finished diamond jewellery is exported. With an estimated consumption of around 800 tonnes during 2006 (including jewellery consumption), India is the largest consumer of gold in the world. India is also estimated to hold nearly 14,000 tonnes of gold, accounting for nearly 9% of the world’s cumulative mine production. Apart from its historical religious significance, gold is valued as an important savings and investment vehicle.

Gold in Indian families remains the Indian bride’s `Streedhan’, the wealth she takes with her when she marries and which remains hers. Gold jewellery is the preferred jewellery worn by women in India irrespective of their religious beliefs. Gold jewellery is very popular among farmers, with an upsurge in gold sales after a good agricultural season. Buying of gold is also an important part of every stage of an Indian citizen’s life—at birth, marriage, construction of home, festivals, religious ceremonies, setting up of new business, and death.

Size

• Large market for Gems & Jewellery with domestic sales of over $10 billion
• 4% of the global Gems and Jewellery market
• Exports of over US $15.5 billion; over 18% of India’s exports.  According to recent statistics of the Gems & Jewellery Export Promotion Council (GJEPC), India's exports of gems & jewellery (GJ) aggregated Rs. 560.99 billion (US$12.34 billion) during the FY2007 (April-December 2006), representing an increase of 4.4% (0.8% in US$ terms) over FY2006.
• India is the largest consumer of gold jewellery in the world
• Accounts for about 20% of world consumption
• India is the largest diamond cutting and polishing centre in the world, i.e., 60% value share, 85% volume share and 92% share of the world market by number of pieces
• The Indian domestic diamond jewellery market was estimated at around Rs. 76 billion during 2005.
• China ranks sixth in the world in terms of diamond jewellery retail value, ahead of India which is in seventh place. India ranks third in terms of diamond value, while China holds the seventh position.
• Indian diamond jewellery industry is the third largest consumer of polished diamonds after USA and Japan

Structural Characterstics

• The Indian Gems & Jewellery industry is highly fragmented with a large number of domestic private sector companies. The bulk of the GJ industry in India is concentrated in the unorganised sector.
• The majority of India’s diamond workforce is employed by small units, that process diamonds on a job-lot basis. The number of gold jewellery manufacturing units is put at 0.1 million.
• India is the largest diamond cutting & polishing centre in the world, followed by Israel and employs an estimated 2 million workers serving over 0.45 million goldsmiths, and around 0.1 million diamond processing units.
• India has several well recognised strengths which have made it a significant force in the global Gems and Jewellery business, like i) highly skilled, yet low-cost labour, and ii) established manufacturing excellence in jewellery and diamond polishing.

  Policy

• In 1990, the Gold (Control) Act was abolished, which had forbidden the holding of gold in bar form.
• In 1993, the GoI also permitted non-resident Indians (NRIs) to bring 5 kg of gold into the country twice yearly on the payment of import tax of Rs. 250 per 10 grams; this allowance was raised to 10 kg per trip in January 1997. In 1997, the GoI also permitted import and export of gold under Open General Licence.
• In the trade policy (2004-09) issued in April 2006, the GoI has allowed import of precious metal scrap and used jewellery for melting, refining and re-export of jewellery for higher utilisation of melting, refining and jewellery-making production capacity. 
• Jewellery is permitted to be exported on a consignment basis, allowing exporters who have had to deal with the problem of unsold jewellery in foreign markets to now re-import the unsold pieces.
• steps taken include allowing exporters to re-import the rejected precious metal jewellery subject to refund of duty exemption benefits on the inputs only and not the duty on jewellery as was being done earlier; reduction in value addition norms for export of gold & silver jewellery from 7% to 4.5%.
• 100% FDI is permitted in the Gems & Jewellery sector through the automatic route
• SEZs and Gems and Jewellery Parks have been set up to promote investments in the sector
• Cutting and polishing of gems and jewellery treated as manufacturing for the purposes of exemption under Section 10A of the Income Tax Act

  Outlook

• India is the fastest-growing jewellery market in the world
• Branded jewellery likely to be the fastest-growing segment in domestic sales
• The sector is expected to grow at 40% p.a. to $2.2 billion by 2010
• Exports expected to grow from $15.5 billion in 2005 to over $25 billion by 2010
• India is the most technologically advanced diamond cutting centre in the world and has the opportunity to address one of the world’s largest and fastest-growing Gems and Jewellery markets
• Indian industry has been gaining prominence as an international sourcing destination for high quality designer jewellery
• Walmart, JC Penney etc. are increasingly procuring jewellery from India

References:
www.investmentcommission.in
ICRA reports