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Gems and Jewellery - A Sector That Needs Attention

A Project Report Submitted in Partial Fulfillment of the Requirement for the Degree in Bachelors of Business Administration



GEMS AND JEWELLERY SECTOR :It form an integral part of Indian tradition. A legacy passed from one generation to another. The components of jewellery include not only traditional gold but also diamond, platinum accompanied by a variety of precious and semi-precious stones. The significance of the gems and Jewellery industry in the Indian economic scenario is a development of the last three or four decades. India is a leading player in the global gems and jewellery market. The gems and jewellery industry occupies an important position in the Indian economy. It is a leading foreign exchange earner, as well as one of the fastest growing industries in the country. The two major segments of the sector in India are gold jewellery and diamonds. Gold jewellery forms around 80 per cent of the Indian jewellery market, with the balance comprising fabricated studded jewellery that includes diamond studded as well as gemstone studded jewellery. A predominant portion of the gold jewellery manufactured in India is consumed in the domestic market. However, a major portion of the rough, uncut diamonds processed in India is exported, either in the form of polished diamonds or finished diamond jewellery. The largest consumer of gold world wide , India is also the leading diamond cutting nation. The Indian gems and jewellery industry is competitive in the world market due to its low cost of production and the availability of skilled labour. In addition, the industry has set up a worldwide distribution network, of more than3,000 offices for the promotion and marketing of Indian diamonds. The Indian diamond industry has the world's largest cutting and polishing industry, employing around 800,000 people (constituting 94 per cent of global workers) with more than 500 hi2

tech laser machines. The industry is well supported by government policies and the banking sector with around 50 banks providing nearly $3 billion of credit to the Indian diamond industry. India is expected to have its diamond bourse functioning at Mumbai in 2006. India is therefore a significant player in the world gems and jewellery market both as a source of processed diamonds as well as a large consuming market. . In 1966-67, the export turnover of the Gems & Jewellery industry was just Rs 220 million representing a 3 per cent of total merchandise exports. However, it has now grown to become one of the leading export oriented industries in India recording an export turnover of around Rs 91617.53 Crore during2008-09, making it a significant foreign exchange . The sector is largely unorganised at present with a small but growing organised sector/The Indian gems and jewellery sector is largely unorganised at present. There are over 15,000 players across the country in the gold processing industry, of which only about 80 players have a turnover of over $4.15 million (Rs 200 million). There are about 450,000goldsmiths spread throughout the country. India was one of the first countries to start making fine jewellery from minerals and metals and even today, most of the jewellery made in India is hand made. The industry is dominated by family jewellers, who constitute nearly 96 percent of the market. Organised players such as Tata with its Tanishq brand, have, however, been growing steadily to carve a 4 percent market share.

Gems and jewellery play a significant role in Indian customs and traditions, making this sector integral to the economy and one of the fastest growing industries in the country. Worldwide, the gems and jewellery industry has been growing at a good pace and is currently estimated at over US$ 130 billion. In India, it accounts for nearly 20 per cent of total Indian exports. It provides employment to 1.3 million people directly and indirectly. Apart form being the world s largest diamond processing (cutting and polishing) country with an 80 per cent share in world market India s favorable trade policies have made India the hub for gems and jewellery. Leading Branded jewellery is the new mantra in the market, having rapidly acquired a niche over the past few years. Increasing purchasing power and disposable incomes of India s middle class has resulted in consumption growth of this industry by about 11 per cent in the five-year period preceding 2006-07. Add to that the insatiable Indian craving for gems and jewellery, and the demand will skyrocket to US$ 20 billion by 2010 and US$ 30 billion in 2015, according to industry experts. India s gems and jewellery industry has been allowed 51 per cent foreign direct investments by the government in single brand retail stores attracting both global and domestic players to this sector. The burgeoning retail industry in India is instrumental in innovatively marketing and branding diamonds and traditional jewellery, making inroads in this sector and contributing to the nation s economy.

According to a report released by Technopak Advisors on Changing Retail Landscape in India, the jewellery and watches market is pegged at about US$ 13.52 billion. It is expected to register a 12 per cent growth by 2012, touching US$ 23.54 billion. India s economic boom in the country has translated into a large consumer market for jewellery and other luxury products, offering a lucrative opportunity for major brands to make their foray into the Indian market and establish their presence. Experts believe that by 2013, India will become the biggest consumer of jewellery. The history of the Indian gem and jewellery, a $30-billion industry, began and flourished in the two leading States of Maharashtra and Gujarat. Exports from the industry fetched $17.1 billion in 2006-07 against $16.64 billion in 2005-06, showing a growth of 26 per cent. But in past 1 year we have seen some decline due to recession. The journey of a diamond is said to begin with mining of roughs followed by sourcing them by trading firms after which they trade it with the processors who then process the rough diamonds to manufacture cut and polished diamonds which then end with the trade of the polished diamonds

PRESENT STATE OF THE INDUSTRY :The year 2007-08 has witnessed a growth in all the major segments of the Gem and Jewellery industry and the total exports stood at Rs.67500 crore, a growth of 29.27% as compared to the previous year. Exports of diamond have continued to rise and the Jewellery sector has turned in another record-breaking performance. India s share of the world's polished diamond market is 60 per cent in terms of value, 85 per cent in terms of volume and 92 per cent in terms of pieces. Global gold Jewellery consumption increased 33% in the year 2005, the buoyant demand in countries like India, the Gulf States, China and Turkey pulled up the overall figures. Since early 90's, the Jewellery has averaged a growth of over 30%, making India the fastest growing Jewellery exporter in the world and also in the year 2004 the demand for gold Jewellery in India increased by 29% in value to become the fastest growing Jewellery market in the world.

With the world economy doing well and increase in the personal disposable income of the general public demand for the gems and Jewellery has increased worldwide. This year Jewellery sector grew by 49%. Exports contribute 70% of the total sales of the industry. With United States contributing most (35%) in the export bill. With rupee value depreciating against the U.S. dollar there may be a windfall increase in the profitability in the coming times for the industry. Many companies are on the hunt for acquiring subsidiaries Indian companies will able to strengthen their retail network. One of

the areas of concern for the industry is the surge in the prices of rough diamond pieces and India depends upon other countries but with the proposal of increase in the FDI limit on mining from 74% to 100%, dependence on the other countries will be reduced. Overall with the economic fundamentals looking good, favorable government policies and exploration of the newer markets industry looks all set for a good time ahead GOVERNMENT POLICY: Levy of two per cent excise duty on premium branded Jewellery. 100 per cent Export Oriented Units (EOUs) and units in the Export Processing Zones (EPZs)/Special Economic Zones (SEZs), enjoy a package of incentives and facilities, which include duty free imports of all types of capital goods, raw material, and consumables in addition to tax holidays against export. Currently 74% FDI in Mining, 100% proposed. GOVERNMENT INITIATIVES : In order to open a new avenue for the bullion trader community with improved trading practices and increased delivery centres, the recent strategic tie-up between Bombay Bullion Association (BBA) and Indian Commodity Exchange Ltd (ICEX) has opened an avenue to harness the huge investment potential lying with the small and the unorganised players. It further offers membership to all the BBA members. It further, jointly deepens the markets in order to encourage wider participation, by providing multiple delivery centres across the country by leveraging on MMTC's and BBA's pan-India network. BBA will be an important stake holder in exchange's efforts

in strengthening the delivery infrastructure and also in launching customised contracts suited to requirements of Indian markets. In a move to boost the industry, the government has formulated new rules for faster clearance of import and export consignments of specific goods including jewellery and gems. Furthermore, the government has incorporated some other measures like providing interest subvention of 2 per cent to labour intensive export sectors and duty drawback facilities, in order to promote gems and jewellery export . From January 1, 2008. It has also made the import of polished diamonds completely duty free. This will facilitate the sector towards evolving from being just a manufacturing centre to becoming a global trading hub for diamonds, The committee appointed to study India's National Design Policy is likely to recommend the setting up of four additional National Institutes of Design (NIDs), along the lines of the existing Ahmadabad-based NID, whose curriculum includes, among other disciplines, jewellery design. THE govt of India took several initiative to stimulate growth given the industry s critical importance in Indian exports. This include duty free import of rough diamonds and waiver of custom duty on coloured rough gemstones and semi processed, half cut and process diamonds. The EXIM policy for 2002-2007 focused on exports of gems and jewellery through market access initiative schemes, duty free imports and adjustment in value addition norms. There was a reduction of import tariff on cut and polished diamonds and gemstones from 15% to 5% which enable Indian jewellers to import expensive, large-sized diamonds and export them after value addition through the manufacture of studded jewellery.

Growth in global demand for jewellery may slow from the 5.2 percent Compounded Annual Growth Rate (CAGR) it registered since 2000, to 4.6 percent by 2010 or 2015, unless appropriate collective action is taken by players in the industry. The projection is based on an assessment of the impact of eight key business trends that the two bodies believe will affect the performance of the industry. These trends include: the local beneficiation in the mining countries; fragmentation of supply sources and an increase in rough supply; consolidation across the value chain; rise of new centres for jewellery manufacturing; growth in the use of synthetics and non- precious metals in jewellery; a decline in demand for plain gold jewellery; organization and consolidation in the emerging markets of India and China; and intense competition from other luxury goods