Sabyasachi Ray of GJEPC speaks about the gems & jewellery trade in India
Headquartered in Mumbai, the Gems and Jewellery Export Promotion Council has been the premier trade body for the diamond trade since over 50 years. Sabyasachi Ray, ED, speaks on how the trade has evolved and why the future looks good. Edited excerpts:
How the trade sees the upcoming Surat Diamond Bourse: https://youtu.be/Y1cPpPeC748
We are seeing this as a good sign.
We are the largest diamond centre, but this did not happen at one stroke. You are aware that the diamond trade base was first in the Zaveri Bazar area, and with time and better business, they then shifted to Opera House. Exports were $5 billion and then when they grew to $10 billion, that affluence led them to Opera House. From there again growth happened and the figure went to $18-20 billion. It is from there that we saw this market transition again to the present location at Bharat Diamond Bourse. Now the industry target is $40 billion, so then expansion is again essential, and Surat is meeting the requirement.
One thing is clear – the trade is doing well. The Bharat Diamond Bourse has been built entirely by entrepreneur capital, and the same is the case with Surat Diamond Bourse. So, when there is prosperity, the trade sees growth, that is where they put in capital.
Today Indian diamond industry is seeing lab-grown diamonds as a growth avenue, where we have taken leadership. This new initiative is therefore timely – I do not see any kind of mass exodus, rather both exchanges will complement each other.
The evolution and impact of lab-grown diamonds: https://youtu.be/vQiFM2UGKXM
No one will understand development of the lab-grown diamond segment better than the GJEPC. You will recall 4-5 years ago, there were questions regarding undisclosed mixing. We were the industry body who came forward, employed AT Kearney and other agencies. They tracked the diamonds – from where are they coming, where could they be getting mixed.
A committee was monitoring trade responses, penalising vacillations. Based on that, this has now stopped. Regarding lab-grown diamonds, we said then and we say now, that this is a product capable of standing on its own without the identity support of natural diamonds. Now they too understand that as a product they have found their foothold. While they used natural diamonds to get recognition, now that stage is past.
When we published the AT Kearney report some 3-4 years ago, we discussed different scenarios. We had said that in next five years, they could control 7 percent of the total market. This has actually happened now (earlier than expected), which is a good sign. In markets like the USA, strong growth is visible.
From our discussions with retailers like Signet, we understand that lab-grown diamonds is a complementary market. Today we say that a diamond is the most precious possession you could have. That preciousness cannot be taken over by lab-grown diamonds.
If you see the last year has witnessed superb growth in the USA market, and lab-grown diamonds have participated. We are looking at the lab-grown diamonds share rising from 7 million carats to 30 million carats in the next 3-4 years.
Let us have some perspective on this growth. In 2016-17, the natural diamonds production was 160 million carats. Today it is closer to 120 million carats. So there is already a gap of 30 million carats and we believe the lab-grown diamonds segment will fill up this gap.
Duty on gold and the ramifications: https://youtu.be/YEJuD5Fpb_w
Our view on this matter to the Government is consistent. Import duty on precious metals needs to be not more than 4%. Else unscrupulous fringe elements get an incentive, and, in the bargain, the industry reputation suffers as a whole. We do not want our activities to be used for nefarious purposes.
There is a government counterpoint is that imposition of duty impacts imports, and therefore saves forex outgo to an extent. But if you practically see the volume of transactions, the sales tonnage, and gold price movements over the past few years, it does not support this theory. Duty imposition does not alter the insatiable desire of Indians to own gold.
Demand for this budget from our side is there for again to rationalise duty to 4%. The government has understood this in the past and they had got it down to 7.5% which was a step in the right direction.
Beyond demand and supply, how the currency would be impacted, and similar issues – they are all fiscal matters which are not in my domain. Our focus on gold is entirely as a raw material which is vital for our final product we should not be commenting on fiscal policy matters as such.
Benefits of the recent FTAs: https://youtu.be/2u48pY1o114
The currently signed FTAs are much different from the earlier ones. The way the earlier FTAs were somewhat negative for our trade. They had been designed and signed without consultation of the trade community, and the results therefore did not go favourably in a number of cases.
Therefore, we weren’t too inclined to the FTA concept. But this government has done very intensive meetings with us, and taken views from each component of the industry. Based on that, the FTA with the UAE, which is a consumer country was structured. The same was with the manner in which the FTA with Australia was drafted and finalised.
If you see the export figures from April to September – remember the FTA was activated from May – exports to UAE are up by 20%. This has led to huge enthusiasm in the market.
Why this event has generated enthusiasm needs context. UAE and the whole Gulf market buys mainly plain handmade gold jewellery. This is essentially made by artisans, down the line, right down to village level. If the exports to UAE support the village economy it will be excellent. Prior to the FTA, these markets were captured by Malaysian output, and this trend has now been reversed.
For studded gold, silver or platinum jewellery, the Australia FTA is beneficial. The key areas in India for diamond studded jewellery are SEEPZ in Mumbai, Sitapura in Jaipur and the Surat SEZ. They will benefit greatly from the FTA with Australia.
If the FTA with UK can happen, the plain gold jewellery as well as the studded gold jewellery segments will benefit, because UK has a significant segment of Asians in its population. We are hopeful and optimistic, that all three markets will grow under new structures.
China as a competitor: https://youtu.be/5ajJLXX2vcA
China could be a threat in other industries for India, but not here. We in fact work very closely with them, since China is also a good market. They take diamonds from us for their local studded jewellery sales.
In cutting and polishing, if they were able to take market share away from us this would have happened by now. They are now not even looking at it. India’s prowess in cutting and polishing extends to below one carat, and they simply cannot match up. They would need 5 to 10 years, and China is also now getting to a high-cost labour economy status.
In larger diamonds, we are taking over share from locations like Israel and Belgium. In that sense, we have a captive footprint.
For China – to reverse the trend – it will need time, investment and skill. They may be better off investing into the studded jewellery segment, where again we are competing with them. In fact, if China were to bring down its duties on studded jewellery imports, we could make a market there too.
Challenges for the industry: https://youtu.be/Za2zTCELB18
One big challenge for the industry is the processes. In that regard, the current government’s work towards simplifying processes is very commendable, be it digitisation, or faceless appraisals and similar approaches in customs or income tax. On our part, we are also trying to work with the government in this aspect. The ideal scenario is faster clearances everywhere, and we are working on both sides.
The taxation front is next. As an industry, we have conquered the manufacturing domain but till now the trading domain is not done. I don’t claim that we need a tax-free status on the lines of Dubai, but some procedural modifications can happen.
Let’s talk of Belgium, where annual trade in rough and police diamonds is $40 billion. Most of the processing is done here, so why is the trade too not done here? We should be looking at this market. Some tax modifications, at least in enclosed spaces, are called for. The same approach is needed in gold as well. Aur first step in this direction has happened through the concept of Gandhinagar GIFT City.
In gems and jewellery we are global leaders and control the market, despite none of the raw materials being produced here. To sustain the leadership we need simplification and modification – imagine the scenario where raw materials at delivered promptly and conveniently at the processor’s doorstep. Today 15-20% of our gold jewelry is exported and this figure has to go to around 40-50%. The global gold market, in all its forms, is $500 to 600 billion, and that is the horizon to where we must look.