Coronavirus rubs sheen off Indian gems and jewellery industry
Pankaj Khanna April 26, 2020
MD & Founder, Gem Selections
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Coronavirus epidemic is expected to adversely impact the consumer demand and influence the Indian gems and jewellery industry. The gravity of the situation can be understood from the fact that the two famous jewellery trade fairs held by the Hong Kong Trade Development Council have been postponed to May from March 2020, as per the Dun & Bradstreet data.
Understanding the statistics, India is the largest global centre for diamond cutting and reproducing sectors, while Hong Kong is the biggest export market for India, with a 38 % share.
The outbreak of Covid-19 with its epicentre in Wuhan, China has drastically impacted not just its economy, but the rapid spread of this virus across Europe and now Asia has left the global economy in jeopardy. As a matter of great concern, the complete lockdown in Hong Kong, the largest trading hub for diamond and gold jewellery exports from India, has given a sharp blow to the industry.
The blowout of the Covid-19 to more countries is likely to make it a very tough phase for the gems and jewellery industry, trimming off Rs. 13,800 crore, or approximately $2 billion, from the export market this fiscal year. Additionally, this will put a burden on the working capital of the trade, which is already staggering under a severe credit crunch and heap-up of inventory due to reduced export demand.
Overall the gems and jewellery exports are expected to fall by 5% from the previous year’s Rs. 2.77-lakh crore or $39.68 billion. Demand in the world’s second-largest gold purchaser has already plunged by record-high domestic prices.
The rise in gold prices, owing to the coronavirus fright is also anticipated to lower jewellery exports. The only saving for the gem and jewellery export segment is the 4 % increase in gold jewellery exports in the first ten months of this fiscal to $10 billion or $9.80 billion. Talking about the global trends, gold prices soared up to a multi-year high of $1,689 an ounce. Cut and polished diamond exports plunged 16 per cent to Rs. 1.15 lakh crore.
The extent of the effect of Coronavirus on worldwide businesses will hinge on how soon it gets controlled. Coronavirus had hit the world at a time when both the global and the Indian economy were facing a slowdown.
The Indian economy was expected to grow at just 5 per cent this year, as per the first GDP estimates released by the government. It is essential in such times that the government should provide instant relief by lowering the duties and taxes, apart from taking necessary actions to target new export markets to analyze and control the risk and tackle unexpected situations like the virus outbreak.
Supply chain will remain unsettled for at least a year, as in Gems & Jewellery trade over 90% of the raw material is imported and imports are again on a complete standstill. The industry will feel its effects for at least a year.
There is a massive slowdown in the entire market due to Coronavirus, and it has affected the sales of gold drastically. People have been asked to stay indoors, which has led to the closure of retail shops as there are no buyers of gold anymore.
At the same time, all offline sales are expected to be down by 80%. The only way to increase sales is to reach online trades. Owing to the economic crisis that this Coronavirus will unleash, the Gems & Jewellery industry will be on a complete halt for at least six months. Buying Gems & Jewellery will be the last on the priority list for anyone for the next least six months. The industry is sure to have lost over 75-80 % sales this month as individuals are purchasing only essential products and tend to keep cash on them as there is no clarity on how long this crisis will prevail. There is a constant fear that the situation may worsen.
This time range may still increase owing to the effect on the GDP of the country, which is already not in a perfect place. Besides, many employees will have to be sent on unpaid leaves for months as there will be minimal or no work for the employees. It will leave an effect on many households, and the buying capacity of every home will thereby decrease drastically. In such circumstances, no one will be opting to invest in Gems or Jewellery.
India’s average gold demand is around 850 tones owing to its affinity to gold and social and economic context, and the country’s gold demand was anticipated to be approximately pf 700-800 tonnes in 2020, as per the WGC. The Dhanteras and Diwali festivals were the only hopes, but the unpredictability along with higher costs has impacted the demand. With the shutting down of many malls and postponing or scaling down of marriages have also left an impact on the demand.
India’s Gems & Jewellery sales are set to drop to the lowest in a quarter of a century, and when we get through with the lockdown, it is a long fight ahead. The trade body, along with the Gem & Jewellery Export Promotion Council is discovering ways to help several small workers employed in the industry who earn daily/weekly wages.
The industry is looking for an expansion for loan repayments and a decrease in import tax on gold to 4% from present 12.5% to help jewellers. The above statistics and analysis depict that the Gems & Jewellery Industry are in the doldrums. These are times when significant industries will face a sharp blow which will thereby affect the country’s economy. We all need to stand strong and prepare ourselves for the impact that this virus will leave on our lives and businesses.