Indian Gems and Jewellery Sector Dr. Nishant Joshi, PIMR-Indore;Select Market and Thrust Product MBA(IB)-3rd Semester

Statement

• “Indians have always been connoisseurs of precious stones and ornaments. Trade secrets of the jewellery business have been handed down over generations, ensuring continuity of traditional craft. Thus, India is today the world’s largest diamond cutting and polishing centre.India has been adding modern techniques to its traditional know how that are more in tune with global market trends. Several well-organised polishing units have been established to improve productivity and meet growing international demand.”

Introduction • The gems and jewellery sector has been one of the fastest-growing

sectors in India in the past few years. During April–November 2014, gems and jewellery accounted for around 20.9 per cent of the country’s total exports.

• The sector has gained global popularity because of its talented craftsmen, its superior practices in cutting and polishing fine diamonds and precious stones, and its cost-efficiencies.

• Gems and jewellery exports reached US$ 36.2 million in 2014–15. The industry grew 4.3 per cent, with exports worth US$ 36.2 billion in 2014–15 compared with US$ 29.4 billion in 2009–10.

Indian Jems and Jewellery Exports at a Glance

Indian Jems and Jewellery Processing Regions

Indian Gems and Jewellery Sector Value Chain

SWOT ANALYSIS OF THE SECTOR Strength• Gold jewellery is the most preferred form of jewellery in demand in India as it is

considered auspicious to purchase gold on major occasions like festivals, marriage, birth etc.

• Gold occupies the second position among all investment instruments and is considered as the safest investment option. India has retained its top position in global gold consumption for the second consecutive year, fuelled by record high jewellery consumption at 703 tonnes in the 4th Quarter of 2015.

• India is one of the largest diamond processor in the world and its artisans have specialised skills in processing small diamonds (below one carat); in fact, the Indian craftsmen have achieved excellence in cutting and polishing small diamonds. However, the real uniqueness of the Indian craftsmen lies in the fact that they do most of the cutting and polishing manually which sets India apart from its other peers. India (especially, Surat and Mumbai) ranks among the ‘big four’ diamond cutting centres of the world — the other three being, Belgium (Antwerp), the US (New York) and Israel (Ramat Gan). Currently, diamonds processed in India account for 85% in volume, 92% in pieces and 60% in value of the total world diamond market.

SWOT ANALYSIS OF THE SECTOR Strength• The sector is well-supported by government policies and the banking

sector.• The Indian gems and jewellery sector is one of the foremost examples

of export-led growth. Gems & Jewellery exports have been accounting for over 15% of total exports from India consistently since FY91.

SWOT ANALYSIS OF THE SECTOR Weakness• The sector is highly-fragmented and unorganised, and is characterised by family-owned

operations. • Around 96% of the gems and jewellery players have family-owned businesses, but, over

the last few years, more organised players have been entering the sector. • As the sector is highly labour-intensive, its dependency on craftsmanship is very high.

For instance, the cutting and polishing of diamonds and coloured gems, which are soft stones, requires immense care on the part of the labourer. Although some activities in the cutting and polishing of gems are mechanised, the sector still requires skilled craftsmen to achieve precision in diamond cutting.

• Gemstones (both rough and finished) and precious metals such as gold, silver, and platinum are the raw materials used in the sector. The prices of these raw materials directly affect the profitability of companies. In recent years, the prices of low-quality rough diamonds and higher quality stones, such as solitaires, have gone up, but as the polished diamond prices have not been increasing at the same rate, the margins of exporters have been under pressure.

SWOT ANALYSIS OF THE SECTOR Weakness• The sector is highly-fragmented and unorganised, and is characterised by family-owned

operations. • Around 96% of the gems and jewellery players have family-owned businesses, but, over

the last few years, more organised players have been entering the sector. • As the sector is highly labour-intensive, its dependency on craftsmanship is very high.

For instance, the cutting and polishing of diamonds and coloured gems, which are soft stones, requires immense care on the part of the labourer. Although some activities in the cutting and polishing of gems are mechanised, the sector still requires skilled craftsmen to achieve precision in diamond cutting.

• Gemstones (both rough and finished) and precious metals such as gold, silver, and platinum are the raw materials used in the sector. The prices of these raw materials directly affect the profitability of companies. In recent years, the prices of low-quality rough diamonds and higher quality stones, such as solitaires, have gone up, but as the polished diamond prices have not been increasing at the same rate, the margins of exporters have been under pressure.

SWOT ANALYSIS OF THE SECTOR Weakness• However, being export-dependent makes the sector susceptible to foreign

currency volatility.• The Indian gems and jewellery sector is pre-dominently dependent on the US

markets, which is its top export destination. The growth of gems and jewellery sector is heavily dependent on the growth of demand in the US market. 

• India is the largest importer of rough diamonds and a leading player in cutting and polishing of the same, therefore, it runs the risk of dealing with conflict diamonds. Conflict diamonds are those that are mined illegally in African countries such as Angola, Liberia, Sierra Leone and the Democratic Republic of Congo to fund illegal military wars. In spite of the KP certification, there are issues related to fake KP certificate. These fake certificates put diamond importing countries at a risk of dealing in conflict diamonds.

SWOT ANALYSIS OF THE SECTOR Opportunity • The US has been the major market for Indian gems and jewellery sector over the years.

However, with the current global slowdown, the dependence on the US market has affected the Indian gems and jewellery sector tremendously. The sector is exploring new locations to diversify business and to minimise the risk. Russia, Middle East and China are few of the emerging destinations that are witnessing an increase in jewellery demand. The Indian gems and jewellery players can tap these countries to diversify and increase their business.

• India is one of the leading diamond processing centres of the world. India’s vast, low cost and extremely skilled workforce provides it with a competitive edge over other countries. However, it is predominantly involved in cutting and polishing of small-sized diamonds, which weigh less than one carat. India's cut and polished diamond exports have a high global share in terms of number of pieces; however, in terms of value the share is much lower. By moving up the value chain and processing larger stones India can further increase its value share in total exports. Large diamonds are less commonly found in nature, therefore, the price of a diamond rises exponentially with its size. Indian exporters who have dominance in processing of small stones have already started moving into cutting of large and medium size stones. For moving up the value chain, the industry should try forward and backward integration. Hence strategic alliances with producers of roughs and retailers of jewellery could lead to higher market share.

SWOT ANALYSIS OF THE SECTOR Opportunity• There exists a huge opportunity for Indian players to do value addition

to the processed diamonds and to export diamond studded jewellery. India is already a leader in processing small-sized diamonds and it also has inherent capabilities of manufacturing hand-crafted jewellery. Further, with its dominance in processing small diamonds, India has an advantage of manufacturing affordable diamond jewellery for the world market.

• The Indian retail sector is growing rapidly. This provides an excellent opportunity for the Indian players to manufacture and sell their jewellery through the retail channels that are fast catching up in the Indian markets. Further, this move will also provide an organised structure to the largely unorganised gems and jewellery sector and lead to further growth of the sector.

SWOT ANALYSIS OF THE SECTOR Opportunity• India can become an outsourcing hub for designing and

manufacturing jewellery. There is an increased trend of outsourcing designing and manufacturing of jewellery from India by global retail players such as Wal-mart and JC Penny. The players in the sector can tap this opportunity to diversify business, reduce risk and increase revenues.

SWOT ANALYSIS OF THE SECTOR Threat • A Major threat to the industry is posed by China and its keen

inclination to enter in a big way in the sector via both automated and non-automated industrialization. They have captive market for gems and natural link with the US markets which also happened to be India’s biggest market.

• Major Currency volatility and high requirement of capital makes this sector vulnerable to global financial issues.

References • Tagwerker, E. (2009). Siho and Naga--Lao Textiles: Reflecting a People's

Tradition and Change. Peter Lang.• www.onicra.com/images/pdf/ReportGemsandJewellery2911• www.ibef.org/industry/gems-jewellery-india.aspx• https://www.dnb.co.in/IndianGemsandJewellerySector/issues.asp