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IndianGemsandJewellerySector

IndianGemsandJewellerySector

Preface | Foreword | ExecutiveSummary | SectorOverview | ForeignTrade | Regulations&Policies | KeyIssues | Interview | CompanyProfiles | Partners | LaunchEvent | EditorialTeam

P.P.Jewellers
AsianStarCoIndiaLtd

ThegemsandjewellerysectorhasbeenoneofthefastestgrowingsectorsinIndiainthepastfewyears.Thesectorhasgainedglobalpopularitybecauseofitstalentedcraftsmen,
GitanjaliGemsLtd
itssuperiorpracticesincuttingandpolishingfinediamondsandpreciousstones,anditscostefficiencies.ThesectorhasbeenvitaltotheIndianeconomyaswellduring200809,
thesectoraccountedforaround13%ofthecountrystotalexports.
RajeshExportsLtd
SuashishDiamondsLtd
ThegemsandjewellerysectorinIndiaisengagedinsourcing,manufacturing,andprocessing,whichinvolvescutting,polishingandsellingpreciousgemstonesandmetalssuchas
diamonds,otherpreciousstones,gold,silverandplatinum.
SuRajDiamondsand
JewelleryLtd

GoldjewelleryisthemostpreferredformofjewelleryindemandinIndiaasitisconsideredauspicioustopurchasegoldonmajoroccasionslikefestivals,marriage,birthetc.Also,
gold occupies the second position among all investment instruments and is considered as the safest investment option.
According to the data released by the World Gold Council
TitanIndustriesLtd
(WGC),Indiaisthelargestconsumerofgold.In2008,Indiaconsumedapproximately660tonnesofgoldandaccountedfor22.71%ofthetotalgoldconsumedallovertheworld,
most of which was used in jewellery. Even though the gold demand remained weak, India continued to maintainFlawlessDiamondsIndiaLtd
its second position in the third quarterended 2009 as well and
accountedfor20.87%ofthetotalgoldconsumedallovertheworld.
Shrenuj&CompanyLtd
Indiaisalsooneofthelargestdiamondprocessorintheworldanditsartisanshavespecialisedskillsinprocessingsmalldiamonds(belowonecarat)infact,theIndiancraftsmen
ClassicDiamondsIndiaLtd
haveachievedexcellenceincuttingandpolishingsmalldiamonds.However,therealuniquenessoftheIndiancraftsmenliesinthefactthattheydomostofthecuttingandpolishing
manuallywhichsetsIndiaapartfromitsotherpeers.India(especially,SuratandMumbai)ranksamongthebigfourdiamondcuttingcentresoftheworldtheotherthreebeing,
Belgium (Antwerp), the US (New York) and Israel (Ramat Gan). Currently, diamonds processed in India account for 85% in volume, 92% in pieces and 60% in value of the total
worlddiamondmarket.
ThegemsandjewellerysectorinIndiaishighlyexportoriented,labourintensiveandamajorcontributortotheforeignexchangeearningstherefore,theIndiangovernmenthas
declaredthesectorasathrustareaforexportpromotion.
MarketSizeandStructure
Thesectorishighlyfragmentedandunorganised,andischaracterisedbyfamilyownedoperations.Around96%ofthegemsandjewelleryplayershavefamilyownedbusinesses,
but,overthelastfewyears,moreorganisedplayershavebeenenteringthesector.Theproductsinthesectorcanbecategorisedasgemstones,jewelleryandpearls,whichcanbe
furthersegmentedintodiamonds,colouredstones(precious,semipreciousandsynthetic),studdedjewellery,costumejewellery,goldandsilver.

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However, diamond and gold are the two most important segments of the Indian gems and jewellery sector. Diamond processing in the form of cutting and polishing is a major
industryinIndia.However,amajorityoftheseprocesseddiamondsareexportedeitherinpolishedformorasdiamondjewelleryglobally.Ontheotherhand,thegoldjewelleryis
mostlymeantfordomesticconsumptionasIndiaisthelargestconsumerofgold.
TheGems&JewellerysectoroccupiesaprominentplaceintheIndianeconomyintermsofitsexportearnings,employmentgeneration,andgrowth.Accordingtotheestimatesof
Assocham,inCY2008,thetotalmarketsizeofthesectorwasUS$23.44bn,outofwhichexportsgarneredthelargestshareof90.45%atUS$21.20bnandthedomesticmarket
accountedfor9.55%atUS$2.24bn.AccordingtotheEconomicSurvey200607,Indiahadamarketshareofjustaround3%intheglobalgemsandjewellerysector,whichwas
wortharoundUS$80bnannually.

GrossBankCredittotheSector
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Thesectoriswellsupportedbygovernmentpoliciesandthebankingsector.AccordingtothereportbytheRBIonGrossBankCredit(GBC),credittothegemsandjewellerysector
has registered a CAGR of 11.55% (200609) and increased from Rs 205.59 bn as on March 31, 2006 to Rs 285.37 bn as on March 31, 2009. The gems and jewellery sector
accountedfor2.71%ofthetotalGBCdisbursedduringtheperiod.However,itisobservedthatthesectorsshareasonMarch31,2009,inthetotalGBCdeployedtotheindustry
hasdeclinedto2.71%from3.73%asonMarch31,2006.

MarketCharacteristics
UnorganisedSector
ThegemsandjewellerysectorinIndiahasbeenknownforitshighlyfragmentedandunorganisednatureandforthepluralityoffamilyownedoperations.However,theorganised
sector is also growing. Even though it has been growing slowly, in future, it is likely to garner a substantial share of the market due to the changing lifestyle and preferences of
consumers.
LabourIntensive
Asthesectorishighlylabourintensive,itsdependencyoncraftsmanshipisveryhigh.Forinstance,thecuttingandpolishingofdiamondsandcolouredgems,whicharesoftstones,
requiresimmensecareonthepartofthelabourer.Althoughsomeactivitiesinthecuttingandpolishingofgemsaremechanised,thesectorstillrequiresskilledcraftsmentoachieve
precisionindiamondcutting.
WorkingCapitalIntensive
The labourintensive nature of the sector makes it more working capitalintensive as well (working capital amounts to a substantial part of capital employed). This is due to the
higherturnaroundtimeinmanufacturingandtheregularpaymentofwagebills.Thereisaconsiderabletimegapbetweentheimportofrawmaterialsandsaleoffinishedproducts,
especiallyindiamondprocessing,ascuttingandpolishingaretimeconsumingtasks.
RawMaterialIntensive
Gemstones (both rough and finished) and precious metals such as gold, silver, and platinum are the raw materials used in the sector. The prices of these raw materials directly
affect the profitability of companies. In recent years, the prices of lowquality rough diamonds and higher quality stones, such as solitaires, have gone up, but as the polished
diamondpriceshavenotbeenincreasingatthesamerate,themarginsofexportershavebeenunderpressure.
ImportDependencyforRawMaterials

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Thegemsandjewellerysectorishighlydependentonimportsforitsrawmaterialsandamongtheserawmaterials,roughdiamondsaccountformorethan50%ofimports.These
roughdiamondsarecut,polished,andreexported.AccordingtotheWorldGoldCouncil,theconsumerdemandinIndiaforgoldin2008was660.20tonnes.Besides,Indiaisalso
oneofthelargestimportersandbiggestconsumersofsilverintheworld,accordingtotheBombayBullionAssociation.

ExportOriented
TheIndiangemsandjewellerysectorisoneoftheforemostexamplesofexportledgrowth.Gems&Jewelleryexportshavebeenaccountingforover15%oftotalexportsfrom
IndiaconsistentlysinceFY91.However,beingexportdependentmakesthesectorsusceptibletoforeigncurrencyvolatility.
ValueChainoftheSector
ValueChainDiamonds
Diamondspassthroughaseriesofprocessesbeforetheyarefinallysoldintheretailmarket.Thevaluechainofdiamondsbeginswithexplorationofdiamondsfromminesandis
followedbyprocessing,manufacturing,wholesellingandretailing.
Mining
There are very few commerciallyviable diamond mines operating in the world currently. Diamonds are sourced through three ways, open pit mining, underground mining and
extraction from alluvial deposits. The rough diamonds that are sought from mining are then sorted in different categories according to the quality, shape, colour, and size. The
diamondsthatarenotgoodinqualityareusedforindustrialpurposesandthegoodqualitydiamondsaresentforfurtherprocessing.
Processing
Processingisthenextandthemostimportantstepasthegreatestvalueadditiontakesplaceatthisstage.Diamondsaresorted,graded,andvaluedatthisstepandthensentfor
further processing. Not all countries that produce diamonds also process it. The sorted and graded diamonds are sent to the cutting and polishing centres such as Antwerp
(particularlyhighvaluediamonds),TelAviv,Israel(formediumvaluediamonds),India(forlowvaluediamonds),China,Johannesburg,NewYorkandThailand.Theseprocessed
diamondsarethenexportedorsoldindomesticmarketsasfinisheddiamondsorasdiamondstuddedjewellery.
ManufacturingandRetailing
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Oncethediamondsareprocessed,theyarethensoldtomanufacturersdirectlyorthroughregistereddiamondexchanges.Muchofthevalueadditionisdoneatthisstage,asthe
diamonds are converted into jewellery. Jewellery making has high margins and therefore, many cutting and polishing centres across the globe are aiming to move up the value
chain to gain maximum revenue. The jewellery that is manufactured from the diamonds is sold either through a wholesaler or directly in the retail market, domestically or
internationally.
India is not a major miner of precious metals and stones such as diamonds but it is the largest processor of diamonds in the world owing to its skilled labour and low cost of
processing.

ValueChainGold
SouthAfricaisthelargestproducerofgoldintheworld.Goldmining,theprocessofmininggoldoutoftheearth,isdonethroughthefollowingmethods:hardrockmining,goldore
processing, placer mining and byproduct gold mining. The gold that is extracted from mines is in impure form, and it is obtained in its purest form through a series of chemical
processescalledrefining.Thegoldthatisrefinedisconvertedintocastbars/goldbarsthroughfabrication.Thefabricatedgoldisthenusedforeithermakingjewelleryorformaking
coins,industrialproductsanddentalproductsjewelleryfabricationgarnersthehighestshareamongthevaluechainactivities.Thegoldjewelleryisthensoldintheretailoutletsin
domesticaswellasinternationalmarkets.
GlobalSourcesofGoldandDiamonds
TraditionalDiamondProducingRegions
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Diamond reserves are mostly located in Western Australia and Southern Africa. According to the Kimberley Process Certification Scheme data, the leading diamondproducing
countries in 2007 were Russia (23%), Botswana (20%), the Congo (17%), Australia (11%), Canada (10%), South Africa (9%) and others (10%), which include countries such as
Namibia,Brazil,SierraLeone,TanzaniaandGhana.However,othernontraditionalregionssuchasformerSovietUnionandChina,whicharebelievedtohavediamonddeposits,
remainunderexplored.

DeBeers
DeBeersisoneofthelargestdiamondminersintheworldandcontrolsmajorityofthediamondsupplyandproduction(almost40to43%)oftheworld.DeBeershasminesin
South Africa, Botswana, Tanzania, and Namibia. It buys diamonds from members across the globe through the central selling organisation (CSO) and sells them through its
marketingarmtheDiamondTradingCorporation(DTC)locatedinLondon.RioTintoandBHPBilitonaretheothermajordiamondproducers.
IndiasDiamondandGoldSources
ProductionofrawmaterialincludinggoldanddiamondisnegligibleinIndiathus,theIndiangemsandjewellerysectorisheavilydependentonimportsforitsrawmaterialsupply.
Untiltheeighteenthcentury,IndiawastheonlyknownsourceofdiamondstotheworlddiamondswerediscoveredinIndiaaround8,000B.C.Thecountrywashometomanywell
knowndiamondssuchasthefamousKohiNoor,thePittorRegent,theOrloff(Orlov)andtheHopehowever,asnewsourcesofdiamondswerediscoveredinLatinAmericaand
SouthAfrica,Indiagraduallylostitsimportanceasadiamondproducer.Ironically,Indiahasonlyoneprimarysourceofdiamonddeposittoday,theMajhgawandiamondminein
PannadistrictinMadhyaPradesh.
IndiagetsmostofitsdiamondsfromDeBeers/CSOdiamonds,theRioTintocontrolledArgylemineinWesternAustraliaandthroughasmallbutgrowingillicittradeindiamonds
smuggledoutofRussia.
ThoughIndiaisnotamajorproducerofpreciousmetalsandgemstones,itdoeshavenoteworthyreservesofgold,ruby,diamond,emerald,sapphireandotherpreciousstones.
StatessuchasAndhraPradesh,Chhattisgarh,JammuandKashmir,Karnataka,Kerala,MadhyaPradesh,Orissa,RajasthanandTamilNaduarethecentresofvariousvarietiesof
gemstones in India. Andalusite, apatite, beryl, brown sunstone (feldspar), chrysoberyl (including alexandrite), diamond, diopside, emerald, fluorite, garnet, hessonite, idocrase,
iolite,kornerupine,kyanite,quartz(amethyst,rosequartz),ruby,rhodolite,sapphire,sillimanite,sphene,spinel,tourmalineandzirconarethevarietiesofgemstonesfoundinIndia.

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EventhoughIndiasgeologicalenvironmentissimilartothatofAfricaandAustralia,twoofthetopgoldproducingcountriesoftheworld,itsgoldproductionisinsufficient.Thegold
explorationinIndiaisstillinitsearlystages,eventhoughamazinglyitisoneofthelargestconsumersofgoldanditsArcheangreenstonebeltsandtheotherfavourablegeological
horizonsarecomparabletoAfricaandAustralia.CurrentlyIndiaimportsmajorityofitsgoldfromcountrieslikeAustralia,Switzerland,SouthAfrica,UAEetc.
AccordingtotheGeologicalSurveyofIndia(GSI),theDeccanregioninthesouthernIndiahasoneoftherichestdepositsofgold.Further,Indiahasaround9%oftheglobalgold
reserveshowever,ithardlyproducesaround0.4%ofitstotalgoldconsumption.Karnataka,AndhraPradeshandGujaratarethegoldproducingcentresinIndiaandthereexists
tremendouspotentialforfurthergoldexploration.Realisingthisanomaly,theIndiangovernmentistakingthehelpoftheGSItoexplorethepotentialingoldanddiamondreserves
inIndia.

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GemsandJewelleryCluster
The Indian gems and jewellery sector employs around 1 million people directly and indirectly. The sector is primarily concentrated in Maharashtra and Gujarat, and Mumbai and
Suratarethemostimportantdiamondcuttingandpolishingcentresinbothstates,respectively.MumbaiisanimportantexportimportcentreforgemsandjewelleryandSuratisan
important centre for processing diamonds. Furthermore, Gujarat accounts for 80% of the total diamonds processed in India and 72% of the diamonds processed in the world
almost8outofthe10diamondsprocessedintheworldareprocessedinGujarat.Popularlyknownasthesilkycitysparklingwithdiamonds,Suratisthelargestdiamondprocessing
centre,witharound10,000diamondunitslocatedinandaroundthecity.Surataccountsformorethan50%ofGujaratstotalexportsofprocesseddiamondsfromIndia.Apartfrom
Surat,AhmedabadandRajkotaretheothermajorgemsandjewelleryclustersinGujaratofwhich,Rajkotisalsofamousforitsexclusivehandmadegoldandsilverjewellery.
The Indian government has set up gems and jewellery parks in special economic zones (SEZ) in Mumbai and Surat to promote the diamond industry. Mumbai has an SEZ called
SEEPZSEZ,whichhasagemsandjewellerycomplexthathousesmorethan150gemsandjewelleryunits.Similarly,SuratalsohasaSEZthathousesadiamondpark.However,
thesectorisgraduallyspreadingitswingstootherpartsinIndiasuchascitiesinthesouth(Coimbatore,Bangalore,Hyderabad,Nellore,Thrissur),WestBengal(Kolkata)andthe
north(DelhiandJaipur).

DemandDrivers

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Inthepastfewyears,butbeforetheglobalslowdown,thegemsandjewellerysectorhasbeenonagrowthtrajectoryanditsgrowthhasbeendrivenbyseveralinterplayingfactors.
Someofthesedemanddriversarediscussedbelow:
LowCostofLabour
ThelowcostoflabourforcuttingandpolishingofdiamondshasmadeIndiaanattractivedestinationfordiamondprocessing.Further,thediamondjewellerythatisproducedata
costofUS$60toUS$90fetchesaroundUS$180intheinternationalmarkets,whichleavesahugemarginfortheretailer.
AvailabilityofSkilledCraftsmen
JewellerymanufacturingisanancientindustryinIndiathereforeithasahugepopulationofskilledartisans/craftsmen.Thetruestrengthsofthejewelleryindustryareitsbeautiful
handcraftedarticlesthatareintricateandcomparabletoworldclassdesignsandtheIndiancraftsmenwhohaveachievedexcellenceinthisart.Furthermore,Indiaisfamousfor
processingverysmalldiamondsthatrequiresimmenseskill,whichtheIndianartisansseemtohavedevelopedovertheyears.TheseadvantageshelpIndiascoreoveritspeers.
RisingDisposableIncome
Therisingdisposableincomehasbeenamajordemanddriverforthesectorovertheyears,bothdomesticallyaswellasinternationally.Jewellery,particularlydiamondjewellery,is
consideredasalifestyleproduct,andthedemandforlifestyleproductshasalsogoneupwiththeincreaseindisposableincomesasaresult,thegemsandjewellerysectorhas
recordedtremendousgrowthinthepastfewyears.GolddemandhasbeenrisinginIndiainthelastfewyearsbecauseofincreasedpurchasingparityofthemiddleclassandthe
increasingincomelevels.Golddemandgrewby7%to769tonnesin2007ascomparedwith722tonnesin2006.
RiseinNumberofWorkingWomen
Overthelastfewyears,therehasbeenaspurtinthenumberofworkingwomen.Thistrendhasnotonlyempoweredwomenfinanciallybutalsohaschangedtheirgeneralattitude
as a result, there has been a growth in purchase of gems and jewellery by this segment, mostly for jewellery that can be worn at work and for social occasions. The increase in
purchasingpowerofworkingwomenandtheirchangingfashionneedshaspushedupthegrowthinthegemsandjewellerysector.
FavourableGovernmentPolicies
TheabolitionoftheGoldControlActin1992,openingupthegoldanddiamondminingtoprivateforeigninvestors,concessional/lowimportdutieshaveallbeeninstrumentalin
increasingthedemandforIndiangemsandjewellerysector.
NurturingNewTalent
The government has set up various training institutes to attract quality personnel, to cater to the international market and to focus on constant innovation of globallyacceptable
designs.Theseinstitutesweresetuptoprovidethegemsandjewellerysectorwithawelltrainedprofessionalworkforcethatisproficientinallaspectsofjewellerydesign,refining,
modelmaking,jewellerymanufacturing,CAD/CAM,gemmologyanddiamondgrading.
AdoptionofKimberlyProcessCertificationSystem
India is a member of the Kimberley Process Certification Scheme (KPCS) that promotes conflictfree diamonds and thrives to prevent smuggling and nonstandard trade in
diamonds.UndertheKPCS,importorexportofallroughdiamondsinIndiaispermittedonlyiftheshipmentisaccompaniedbytheKimberleyProcessCertificate,whichhasnotonly
increasedthecredibilityofdiamondsprocessedinIndiaintheglobalmarketbutalsohasboosteditsexports.
IncreasedAwarenessandChangingPreferences
There is a rise in awareness about diamonds in the Indian market. Various initiatives are being undertaken by major diamond producers, retailers and industry bodies about
portrayingdiamondsasexoticaswellasaffordable.Increasedpromotionbyretailershasmadeconsumersawareofthediamondjewelleryandhavecreateddemandfromvarious
segments,whichincludepeoplefromallagegroups.Thetrendofbuyingjewelleryonlyduringspecialoccasionssuchasweddingsandfestivalshasgraduallychanged.
DevelopmentofSEZs
The government has set up various SEZs to provide special incentives to the highly exportoriented sector. The SEZs have units catering to designing, cutting and polishing of
jewellery.ThedevelopmentofSEZsforgemsandjewelleryhasfacilitatedthegrowthandhasenhancedthetradepotentialforthesector.TheexportsfromSEZsgrewby43.18%
fromFY07toFY08.

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