02nd Global Gold Dore Forum on 14-15 Jan 2018 at Hilton Dubai Jumeirah, Dubai, UAE. Concluded Successfully...
 You are here : Home > Expert Column

Continuous Growth of Organized Sector is Highly Positive for Indian Gems and Jewellery Sector


Sanjeev Agarwal, Chairman, FICCI Gems and Jewellery Committee discusses about various factors that are affecting the industry at present. He also lends his support to establishing a gold spot exchange which can ensure complete price transparency so that even smallest of the jewelers in small cities get benefitted. Excerpts…

What is the impact of GST in the market across?

Transition to GST has been smooth across the value chain starting from manufacturers to retailers and even to customers so far. The acceptance is surprisingly very high and it is of course a big step forward towards smoothening the tax structure. Most importantly what I see from the point of view of gems and jewellery sector is the fact that there is general perception that this industry generates lot of black money through cash transactions etc. If you see, this component is prevalent in other sectors as well. This wrong perception will go away with the introduction of GST because there will be transparent audit trail across the value chain. GST is done so fantastically that both buyers and sellers can not insert wrong data in the system as it will get rejected.

As matter of fact, pre-GST sell was increased as customers thought price will be increased post GST. This is true in respect of some states. for example, in Maharasta, VAT was 1.5 percent, but now it is 3 percent. On the other hand, customers in Keral got benefitted as there was VAT of 5 percent in gems and jewellery. Now, there is no season and I feel when festive season will come, there will be normal demand in the market.

What is your take on issue of FTA?

Normally, the condition is there will be minimum of 30 to 35 percent value addition in the country of origin to be qualified to export to India at zero duty. But, FTA agreement that we have with South Korea, there is no such clause. Even the HS Code is changed, it will be qualified to export to India. People utilized this loophole, but because only few people are doing, it is disrupting the normal market behavior. However, both commerce ministry and finance ministry understood this and they are taking the appropriate steps.

Does Indian gold and jewellery industry need spot exchange?

It is a demand of the industry. Industry feels that there is need for a platform where price remains transparent so that even smallest of the jewelers in small cities get benefitted. WGC is working on the benefits of the stock exchange and they are preparing a paper on what are regulatory constraints and how could it be executed in going forward.

Our market is very peculiar. Internationally if you see, first comes spot exchange and then comes futures and options exchange because futures and options are savvy products which everybody can not understand. Spot exchange is very simple in design where buying and selling takes place in a price known to everybody. In this exchange comes into the picture when a party defaults. Exchange supports the transaction without any loss to other party. Any spot transaction in commodity in India is State subject, and not  a central subject and it is under Ministry of Consumer Affairs. So, there is an issue who will regulate the spot exchange. Discussion has been going on for last twelve years. I think the new government which has been working very fast will certainly do something appropriate soon.

What is your view on gold monetization scheme? It has not taken off as expected.

Government thought whileIndia does have reserve of 20,000 tons of gold lying in household, how a portion of this gold could be taken out into economic circulation. GMS was launched thorough this thought. A basic mistake that happened while formulating the scheme is that when a person goes to market to sell his or her gold or to exchange, he or she normally goes to a jeweller. A person does not know where the hallmarking centre located in his or her town is. Along with that, bank has been forced to participate in the programme in the backend, which they are not interested to do. It failed because of this. In simplest terms, if jewelers are made collection centres, jewelers could immediately inform the banks that they got the gold. Customers get the credit immediately and as a jeweller he will debit the gold as gold loan. Government was concerned on the other hand that jewelers might misguide the customers and so, they didn’t do that.

What is your view on sovereign gold bond?

Sovereign gold bond is the best product if someone wants to invest in gold for a long term. Investor is earning interest; it is totally tax free and at the end of the tenure, government of India is guaranteeing investors to get back equivalent gold or money. Only thing I would like to comment here that many a time it happened that when the new window is opened based on the price of previous week, price of physical gold in market has come down. But, very recently they announced it sovereign gold bond will be available in ‘tap’. Secondly, I would say the campaign of this product has not been done adequately. I would say if government appoints jewelers as selling agent of this bond, more people will invest.

How do you like to comment on overall structure of the industry at present?

In my view, this industry has evolved a lot; lots of people are getting organized. Market has been growing at 15 percent per year and along with that organized sector has gone up by 20 percent. This is very positive. I believe it will improve further with the commencement of GST, possible introduction of Spot Exchange etc. Now, our industry is divided into two sectors – diamond and gold. For diamond industry, demand is less in domestic market and more to export. On the other hand, India’s gold jewellery export has come down in last 10 to 12 years. India’s market share in this segment is around 10 to 15 percent, while competitor like China is enjoying market share of about 25 percent. India enjoys 65 percent market share in diamond. So there is big gap between diamond and gold. The kind of low cost skilled ‘carigars’ and manufacturing base we have, I feel there is great opportunity lies in increasing our export in gold jewellery segment. Commerce Ministry is also working hard how they could support this industry. Ministry is ready finance for skill development and is also developing common manufacturing centres. Now, it is the industry to gear up and look for the ways to maximize the opportunity.

 Disclaimer: Views are personal and not the views of the publisher.