The Indian gems & jewellery (GJ) industry is one of the most important segments of the Indian economy. The GJ industry may be categorised into the following sub-sectors based on characteristics,processing techniques, preciousness in terms of price range and marketability.
Gemstones - diamonds, coloured Stones-precious, semi-precious, synthetic
Jewellery-plain gold, studded, silver, costume
The two major segments of the GJ business in India are gold jewellery and diamond jewellery. While a predominant portion of gold jewellery manufactured in India is for domestic consumption; a major portion of rough, uncut diamonds processed in India in the form of either polished diamonds or finished diamond jewellery is exported. Gold jewellery accounts for around 80% of the Indian jewellery market, with the balance comprising fabricated studded jewellery-diamonds and gemstones.
About FE-ICRA Study
The fe - ICRA study gives an overview of the sectorthe challenges and opportunities as well as the salient featuresand then goes on to analyse three or four individual companies that together account for a major share of the sector.
With an estimated gold jewellery consumption of 520 tonnes during 2004, India is the largest consumer of gold jewellery in the world, accounting for 20% of global gold jewellery consumption. Domestic gold jewellery expenditure, in terms of the value of the gold content purchased, peaked at Rs. 302 billion in 1998 before declining to Rs. 279 billion in 2002. However, the rise in gold prices since early-2003 has resulted in gold jewellery demand increasing to around Rs. 310 billion in 2004, or around Rs. 285 per capita per annum. Exports of gold jewellery have also increased at a 5-year compounded annual growth rate (CAGR) of 29.5%-from Rs. 52.20 billion (US$1.15 billion) in FY2001 to Rs. 171.13 billion (US$3.81 billion) in FY2005. India is also estimated to hold nearly 14,000 tonnes of gold, accounting for nearly 9% of the world's cumulative mine production. India is typically also the largest purchaser of coins and bars for investment.
Cut & polished diamonds (CPDs)/diamond jewellery
The Indian domestic diamond jewellery market is estimated at around Rs. 65 billion in 2004. The market has grown significantly from an estimated Rs. 38 billion in 2000. However, the diamond sector in India derives its importance from exports. India's share of the world's polished diamond market is estimated at 60% in terms of value, 85% in terms of volume, and 92% in terms of pieces. Exports of CPD have increased at a 5-year CAGR of 11.8%-from Rs. 280.42 billion (US$6.19 billion) in FY2001 to Rs. 500.74 billion (US$11.18 billion) in FY2005. The US has been the largest market for Indian CPD exports, accounting for around 31% of Indian CPDs exports, and 35% of aggregate GJ exports during FY2004. However, in FY2005, Hong Kong displaced US as the largest market for CPD exports from India.
Significant earner of foreign exchange
The GJ industry accounts for around 17% of India's exports. The GJ industry had a trade surplus of Rs. 155.38 billion (US$3.38 billion) during FY2004, as compared with an overall trade deficit of Rs. 623.94 billion (US$13.58 billion). The GJ industry has contributed significantly to the shift in India's exports.
Exports comprise largely cut and polished diamonds
The bulk of the Indian GJ exports comprises import of rough diamonds, cutting and polishing in India, and re-export. CPDs accounted for 71.3% of India's GJ exports of Rs. 702.45 billion during FY2005, followed by gold jewellery (24.4%). These two items account for around 95% of India's GJ exports.
Complete reliance on imported raw materials
With negligible domestic production of gold, diamonds, and other gemstones, the Indian GJ depends entirely on imported raw materials. India's production of gold was estimated at 3.36 tonnes during FY2004, accounting for less than 1% of total domestic demand. production of diamonds in India was estimated at 71,259 carats during FY2004, accounting for less than 0.5% of the estimated requirement of Indian exporters.
To meet its consumption requirements for jewellery and investments, India imported an estimated 767 tonnes of gold during FY2004, valued at Rs. 299.46 billion. The major supplier countries to India include Switzerland, South Africa, UK, Hong Kong, and UAE.
Because of increased exports of CPD in recent years, India's imports of uncut diamonds have increased significantly in recent years. The major supplier countries include Belgium, UK, Israel, UAE, and US.
Overall, India's imports of pearls, precious & semi-precious stones aggregated Rs. 327.56 billion (US$6.05 billion) during FY2004, accounting for 15% of India's non-bulk imports, and 9.3% of total imports. Nearly 66% of India's GJ imports during FY2005 were of rough diamonds.
Large presence of unorganised sector
The bulk of the GJ industry in India is concentrated in the unorganised sector and employs around 1.5 million workers serving over 0.1 million gold jewellers and over 8,000 diamond jewellers. The majority of India's diamond workforce is employed by small units, that process diamonds on a job-lot basis. However, the share of the unorganised sector in the Indian GJ business is declining, because of the shift in processing towards higher stones, implementation of advanced cutting techniques, and preference of buyers towards fewer sellers.
The centre of India's GJ industry is Mumbai. However, most of the processing of diamonds takes place in Gujarat, mostly in Surat, Bhavnagar, Ahmedabad, Bhuj, and Navasari. Mumbai has an increasing number of modern semi-automatic factories and laser-cutting units and continues to be the main diamond trading center of India accounting for the dispatch of 93% of diamond exports.
Dominant world position in lower-sized CPD
While diamonds are cut, polished and processed in nearly 30 countries, India, Israel, Belgium, and the US dominate the world diamond cutting and manufacturing industry. Other centers include North Western Territories of Canada, China, and Thailand.
Because of its international competitiveness arising out of low-cost and skilled diamond processing, India is the world's leading diamond cutting and polishing centre, accounting for 95% share in terms of pieces in the global production of cut and polished diamonds. India accounted for 24.8% of the total world exports of CPDs during 2003. Further, India's share has increased from 21.7% in 2001.
While Belgium and Israel dominate the cutting and polishing of larger-sized and larger-value diamonds (over 0.5 carats), India dominates the lower-sized, lower-value market (less than 0.5 carats). The average size of the Indian CPD production is estimated at 0.02 carats per stone. Thus, India was estimated to have exported around 1.81 billion CPDs during FY2004. India's dominance in CPD is attested by the fact that in recent years, India has imported more carats than all the mines together produced, mainly because of offloading of inventories. During FY2005, India imported 176.24 million carats of rough diamonds, valued at US$7.60 billion-at an average value of US$43.1 p/c. However, exports were 47.94 million carats valued at US$11.18 billion. Thus, exports of CPDs were at an average price of US$233.2 p/c, and this significant lower caratage and higher value is mostly a result of the lower production yield in the cheaper lower-size stones, where sometimes more than 80% of the material can be lost in the cutting process. The rough diamonds processed in India are overwhelmingly smaller-sized which cannot be shaped to intricate designs by the automatic machines used by other leading diamond processing countries, such as Israel and Belgium, which deal with much larger sizes.
Trends in the world's largest diamond jewellery market, the US, highlight the growing presence of India in the cutting and polishing of lower-sized diamonds. While Israel dominated the US market for larger-sizes with a market share of 59.4% in value terms during 2004, India controlled 66.3% of the US market for lower-sizes. India's overall market share increased from 19.1% during 2001 to 20.6% during 2004. The data indicates the continued dominance of India in the lower-sizes, but also a growing presence in the non-traditional Indian goods (polished from 0.5 carat and up).
Possible long-term threat from China
Although India currently enjoys dominance in the world's cut and polished diamonds market, China may emerge as a viable rival, if not in the near term, certainly in the longer term. Competitive strengths of China include: (a) the labour force, like in India, is cheap and disciplined; (b) a significant increase in potential consumers in the high-income segment within the country; by comparison, India has to rely almost solely on exports; (c) quality of Chinese workmanship is steadily improving. However, India still has an overwhelming advantage over China. China processes an estimated 3 million carats of diamonds annually, as compared with 180-200 million carats in India. China has about 0.02 million people working in the industry, compared to India's well over a million. India exported CPD aggregating US$11.2 billion in FY2005, as compared with around US$1 billion by China. Technology is another area where the Indian industry faces a long-term threat from China.China with its modern and automatic factories is today in a position to manufacture jewellery at competitive prices.
Future growth in gold jewellery business is likely to driven by increased exports to US and other markets, and domestic consumption. Although domestic jewellery consumption has increased in 2004, consumption per capita is still very low, reflecting the high proportion of the rural population in the country (the rural population accounts for approximately 65-70% of domestic gold demand). Although exports of gold jewellery have increased significantly in recent years, the export business has been constrained by an inability to compete in global markets on basis of price and superior design capabilities. However, recent industry initiatives are likely to enhance the prospects of Indian gold and GJ jewellery exports business. The GJEPC has targeted exports of US$20 billion by 2007.
Future growth in diamond jewellery is likely to be largely driven by the cutting and polishing of medium and large stones (currently dominated by Belgium and Israel), with higher realisations. Export data from the GJEPC also report a gradual shift in Indian exports to higher value segments, reflected in higher p/c realisations-from US$181.6 in FY2002 to US$229 in FY2004, and US$233.2 during FY2005. Bulk buyers from the US and the European Union are increasingly buying Indian diamond studded jewellery, because of its affordability. Trends in the US market is also expected to favour Indian exporters.The long-term outlook for the Indian gem and jewellery industry continues to be positive. India's competitive advantage is likely to centre on its skilled labour combined with a ready adoption of leading-edge technology.