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World Gold Council presents a report titled ‘Jewellery demand and trade: India gold market series’

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World Gold Council presents a report titled ‘Jewellery demand and trade: India gold market series’

India, the world’s second-largest consumer of gold jewellery, has experienced rapid change over the last few years due to evolving demographics. Weddings and festivals remain the most important drivers of Indian gold jewellery demand: bridal jewellery alone accounts for at least half of the market share. Over the long term, gold jewellery demand in India will be driven by developments in economic growth, income growth and wealth distribution, as well as the rate of urbanisation.

India’s gold jewellery exports have grown over the years, rising from US$7.6bn in 2015 to US$12.4bn in 2019, before the pandemic impacted the trade in 2020.3 Looking ahead, there is a greater need for Indian gold jewellery exporters to develop new markets; currently, nearly 90% of exports go to just five countries.4 But a boost could come in the form of further proposals that will allow advance payments to overseas precious metal suppliers, as well as the formation of the megaCFCs (Common Facility Centres) in the Santacruz Electronics Export Processing Zone (SEEPZ) of Mumbai and Surat.

Executive summary

Bridal wear dominates the Indian gold jewellery landscape

Gold is intrinsic to Indian culture, closely tied to religious beliefs, tradition and festivals. Bridal wear dominates the gold jewellery landscape, enjoying 50-55% of market share, and weddings, together with festivals, constitute the two major gold purchase occasions. No official records exist but the country is estimated to have around 11-13 million weddings per year.5 As women marry at an average age of 22 and as more than half of the country’s 600 million population are under 25, demand for bridal jewellery looks set to remain strong. 6,7 In India, gold gifted to a woman for her wedding is solely her property and important to her financial security.

Agriculture remains important to gold demand. Despite significant urbanisation, 65% of India’s population still live in rural areas and depend on the land for their livelihood. Gold remains the most popular form of investment for these communities and while access to bank accounts has increased, faith in gold has not diminished. Gold demand in this segment is seasonal, closely linked to the success – or otherwise – of harvests.

Plain gold jewellery retains a dominant market share Despite the traditional nature of gold demand, consumer behaviour continues to undergo change. Plain gold jewellery – mainly 22-carat – maintains 80-85% of market share, although 18-carat jewellery is increasing in popularity. 8 India exhibits distinct regional preferences. Studded jewellery – known as Polki, Kundan or Jadau – has an estimated market share of 15-20%, although in Northern India this is considerably higher. 9 In the South, consumers prefer plain gold products, 60-70% of which are studded with diamonds and 30-40% set with precious or semi-precious stones.

Manufacturers are increasingly focused on producing lightweight pieces to satisfy the younger consumer, especially those who want daily wear gold jewellery that matches their adoptive Western-style attire. Silver jewellery is becoming more common due to high gold prices, and platinum is making an appearance, particularly in male jewellery items, but neither impart the cultural significance or aspirational quality of gold and do not pose a major threat.

US overtakes UAE as the largest export destination

India remains one of the world’s largest exporters of gold jewellery, the majority of which goes to the US – recently surpassing the UAE as the largest export destination.10 This reflects two developments. First, extra tariffs on Chinese jewellery exports to the US have made Indian exporters more competitive, and second, the UAE’s implementation of a 5% import duty in 2017 and 5% Value Added Tax (VAT) in 2018 have negatively impacted its competitiveness.

But under a Comprehensive Economic Partnership Agreement (CEPA), introduced in May 2022, 90% of Indian goods sent to the UAE will be given duty-free access. As goods sold in the UAE are re-exported, this has substantially increased India’s gold jewellery exports and will continue to do so.

Looking ahead

Over the last few years the Indian gold market has grappled with numerous regulatory changes and shifting consumer behaviour. Looking ahead, gold jewellery will face further challenges. Changing demographics and the possibility that millennials will move away from gold as other luxury items demand their attention cannot be ignored. Against these headwinds, gold jewellery demand will likely profit from strong economic growth and urbanisation as incomes rise and the middle class increases. As more people are lifted out of poverty, gold jewellery demand will benefit.

E-commerce opportunities are increasing and as a more robust regulatory structure emerges to support online gold jewellery sales at home and abroad, manufacturers and retailers will be able to extend their reach.

As the government seeks to boost manufacturing and exports, jewellery exports are likely to rise. Proposals to allow advance payments to overseas precious metal suppliers and set up Mega Common Facility Centres (CFCs) in the Santacruz Electronics Export Processing Zones (SEEPZ) in Mumbai and Surat could stimulate sector growth if implemented. CFCs would encourage best practice and state-of-the-art machinery would give small manufacturers access to technology and resources. If these efforts are supported by marketing communications around both quality and craftsmanship, the future of India’s gold jewellery market will be assured.

Jewellery demand

India is the second largest jewellery market

The gold market forms a deeply intrinsic part of India. For the population of 1.4bn, gold, and specifically gold jewellery, plays a central role, acting both as an adornment and a form of investment. It is therefore not surprising that for decades India was the largest consumer of gold before being overtaken by China in 2009. 12 In 2021 India bought 611t of gold jewellery, second only to China (673t) but comfortably ahead of all other gold-consuming markets.

Much of the Indian gold market is very traditional, reflecting important cultural and religious ties. This can be seen in the long-standing preference for 22-carat jewellery and the dominance of bridal jewellery. But the gold market is evolving, with changing tastes and designs driven by economic growth, globalisation and changing consumer preferences. In recent years, for example, demand has grown for lightweight and studded jewellery.

Jewellery demand in 2021 by countries/regions

Aside from gold, India has a sizeable and vibrant silver jewellery market and is the world’s largest fabricator of silver jewellery. Our 2019 consumer survey, carried out by Hall & Partners, found that 60% of the women surveyed owned gold jewellery, closely followed by 57% who owned silver jewellery, but only 26% owned diamond jewellery.14 Platinum jewellery did not appear among the top purchases by female consumers, as this market is still in its infancy in India.

Other markets often reflect on the long-established nature of India’s gold jewellery markets – both in scale and importance. The reasons behind gold’s history and longevity lies in how these metals are inextricably linked to Indian customs and religion.

Weddings, religious festivals and agriculture drive gold demand in India

Gold is deeply embedded in Indian culture and purchases are often driven by tradition. Typically, all family members are involved in decision making about how and when gold jewellery purchases are made. Discussions over the years between Metals Focus and retail jewellers have revealed that weddings remain the key motive for buying gold in India. As our 2019 consumer retail insights survey demonstrated, weddings were the number one purchase occasion to buy gold (17%), followed by other important occasions such as birthdays (12%) and festivals (11%).

Focusing on the impact of religion and festivals, gold is often seen as a symbol of wealth and prosperity in the Hindu religion. In particular it is associated with the goddess Lakshmi: the god of prosperity, fertility and productiveness. During the country’s most important festival of Diwali, Hindus pray to the goddess for prosperity, and gold is an important part of that ritual. According to Hindu mythology the creator of the universe, Brahma, known as Hiranyagarbha, was born from a golden egg.

Gold has always been considered a sacred colour, and so gold adornments are worn for specific rituals and events. In religious ceremonies gold coins are often used for pujas (an Indian worship ritual). Most Indian gods and goddesses wear gold embroidered clothes or jewellery. If one looks at the images of various deities, such as Lakshmi, Ganesh or Krishna, one will always find them wearing some form of jewellery.

During the festivals of Diwali and Akshaya Tritiya it is considered extremely auspicious to buy gold. Dhanteras (the first day of Diwali) usually falls during October or November, and Akshaya Tritiya between late April and early May. Hence retailers across the country introduce attractive designs in the run-up to these occasions. On average around 40-60t of gold is sold in India during these two auspicious festivals alone. 15 Underlining the importance of these occasions, the household survey of India Gold Policy Centre-IIM Ahmedabad (IGPC-IIMA) found that 65-70% of respondents cited festivals as their main gold purchase occasion, with Dhanteras and Akshaya Tritiya accounting for 30-35% of these purchases. 16 And with prominent overseas Indian populations, the Middle East and East Asia also see significant gold buying at these times.

Finally, agriculture makes up an important part of Indian gold demand. Even though the sector now accounts for less than 19% of the Indian economy, a large swathe of rural India is still dependent on agriculture and related industries. 18 Put another way, while there has been rapid urbanisation across much of the country, 65% of the population still lives in rural India, highlighting the importance of agriculture as a key driver of gold demand.19 Gold demand in rural communities usually picks up after the harvest season. Harvesting of Kharif crops runs from September until November and about 70% of Indian agricultural production takes place during the Kharif season.

Indian jewellery segmentation

Indian jewellery consumption can be divided into three categories: bridal, daily wear and fashion jewellery. Each category has its own characteristics and offers different products, sizes and designs. That said, there is some cross-over between products, such as bangles and chains, as these are not limited to one segment.

Despite this crossover, one can differentiate in terms of size and weight and therefore decide into which category a product should fall. For example, bangles ranging from 10-20g tend to count as daily wear, whereas those that are 25g and above are considered bridal products.20 When measured by the number of sales, bangles and chains are the most popular items, but when measured in gold content, necklaces are the most important.

The importance of bridal gold jewellery If we analyse the gold jewellery market by weight, the importance of weddings and bridal wear is clear. India is a young country with more than half the population below the age of 25 (and 65% under 35). Although there are no official figures for the number of weddings in India, an estimate is between 11 and 13 million per year. As the average age of marriage for women in India is 22, the number of weddings per annum looks set to remain strong. Considering these numbers, demand for bridal jewellery should remain robust over the long term.

Another important factor as to why bridal jewellery makes up a key component of gold demand is the concept of streedhan – property that a woman receives at the time of marriage, given to her as security, which remains hers to keep. An additional, albeit much smaller, element of wedding-related demand comes from jewellery gifted to the immediate family of the bride and groom, as well as jewellery that wedding guests buy to wear themselves.

The field research undertaken by Metals Focus reveals some interesting trends.21 Bridal jewellery remains the dominant segment (approx.50-55% market share by weight), despite rising domestic gold prices over the last decade and stiff competition from other luxury purchases, such as destination weddings and foreign holidays. The rupee gold price has almost doubled since 2012, encouraging manufactures gradually to shift towards lighter weight pieces, but bridal jewellery has been relatively price inelastic, losing only around 5-10% market share in that time.22 Furthermore, bridal jewellery has faced increasing and stiff competition from other luxury purchases, such as destination weddings and foreign holidays. Wedding jewellery tastes vary considerably across different regions.

Plain gold jewellery dominates the landscape

The Indian gold market has witnessed several changes, driven by both regulation and consumer behaviour (Focus 1). Amid these, plain gold jewellery has maintained its dominant 80-85% market share. Most plain gold jewellery sold in India is 22-carat, but there is a growing market for 18-carat pieces.

Studded jewellery has an estimated market share of 15- 20%. In Northern India this share is considerably higher, in contrast to the South where consumers are more inclined towards plain gold products. 60-70% of these pieces are set with diamonds; the other key segment of studded jewellery pieces are those set with precious or semi-precious stones. This type of jewellery, which is extremely popular across much of the country, is termed Polki, Kundan or Jadau, and is manufactured in the states of Rajasthan, Gujarat, Andhra Pradesh, and West Bengal.

Focus 1: Changing dynamics of Indian jewellery demand

With a company history of more than five decades, Senco Gold and Diamonds has witnessed considerable change in the Indian jewellery market. These developments have occurred both at the retail and trade level. The chief catalyst was the liberalisation of the economy in 1991, which kick-started India’s economic growth. The resultant gains in consumer incomes, which have continued over the last three decades, have given rise to a large middle and upper middle class in India. Consumers are now more informed than ever, contributing to some notable shifts across the retail jewellery market.

To begin with, economic liberalisation paved the way for abolishing the Gold Control Act, which allowed the metal to be freely imported. This helped the retail trade to flourish as it became much easier to source gold. In addition, with incomes rising, tastes and preferences for jewellery have also changed. For instance, with better exposure to Indian and global trends, due to rising travel and internet penetration, jewellery tastes are no longer local and traditional. A consumer in the South of India is no longer opposed to Jaipur jewellery or studded diamond jewellery. Similarly, temple jewellery, which is widely popular and traditionally bought only in the South, now has acceptance even in the North. Modern takes on traditional jewellery are also increasingly popular, and young consumers are no longer fixated on buying only traditional pieces. The concerted shift from local to regional and national buying patterns has largely benefited chain stores, whose market share has grown sharply in recent years.

Separately, consumer behaviour has also been affected by the trend in rupee gold prices, which have touched record levels. Consumers normally have a fixed budget when they visit stores and so the amount of gold they can buy will vary with changing gold prices. As a result, over the last five to six years retailers and manufacturers have increasingly focused on lightweight products to satisfy a range of budgets. This is important, even for traditionally heavy bridal pieces and temple jewellery. As a result, I believe, over the years there has been at least a 10% drop in average product weights.

Aside from moving to lighter pieces, the daily wear segment has seen some key developments. Most important, I believe, has been a trend embracing modern designs to fit Western attire, which has seen increased demand for lower caratages, notably 18-carat and 14- carat. Given that more than 65% of the Indian population is below 35, their choice of jewellery differs greatly from earlier generations as younger consumers tend to prefer Western clothing.

Another significant development over the last decade has been the penetration of mobile phones and low-cost internet. About a decade ago very few jewellery retailers focused on online sales, but today every large and midsized retailer has an online platform. Even for us, online jewellery sales now account for between 5-10% of our overall sales, which have been growing since the pandemic. Lastly, rising internet access and the advent of social media have allowed retailers to interact directly with their consumers in new ways to create brand awareness and drive sales.

From a regulatory perspective, successive governments have taken steps that have impacted the trade and consumer behaviour. These include a sharp increase in import duty, restrictions on cash transactions, compulsory declaration of PAN Card on high-value transactions, demonetisation, the introduction of the Goods and Service Tax (GST) and compulsory hallmarking. While the increase in import duty did initially help the unorganised trade, demonetisation and GST have supported the growth of organised operations. Numerous research agencies attest that chain stores are gaining market share in India. This trend has also been due to changing consumer behaviour and growing awareness about quality and price transparency. The clampdown on cash usage has also seen more consumers adopt digital payment modes, which is a positive sign.

Overall, I believe the Indian market will continue to evolve as the younger generation drives trends and as organised retailers gain market share. Retailers are trying to tap into the sizeable young population by offering products that suit their tastes and budget. It has made us adjust not just our product offerings, but also how we do business and interact with consumers.

Suvankar Sen MD, Senco Gold and Diamonds Pvt ltd 

Lower caratage daily wear jewellery has been widely accepted

Daily wear/fashion jewellery accounts for 45-50% of the market. Unlike the bridal segment, which is primarily 22- carat, daily wear products cover 22-, 18- and 14-carat. Even so, 22-carat remains dominant with more than 80% of the market, and 18- and 14-carat combined account for a 15-17% share, with both having increased over the last decade.23 14-carat jewellery has only emerged in the last two or three years and, as it stands, only a small number of retailers currently offer this lightweight, relatively low-carat product.

The daily wear category covers a wide range of items, including earrings, rings, chains, mangalsutras, bangles and bracelets, ranging from 5g to 30g.24 The growth in lower caratages has been driven by three factors: the growing popularity of modern designs; the increase in rupee gold prices, and the growth of studded diamond jewellery. Studded diamond jewellery is predominantly sold in lower caratages (14-carat and 18-carat) for two reasons: first, the studded diamond jewellery is 23 Metals Focus purchased for adornment rather than investment; second, lower carat studded diamond jewellery is typically harder and so lends itself to stone-setting better than softer alloys. It is also easier to make thinner and more delicate designs in harder alloys, which again works better when the designer wants to set stones.

Gold-plated jewellery growth slowed after an initial euphoria

Gold-plated jewellery, or gram gold as it is known in India, is a phenomenon that has developed over the last decade, primarily driven by high gold prices. Essentially, it is jewellery with less than 1g of gold. This type of jewellery has resonated with lower-income consumers. Gram gold is available in bridal and daily wear collections.

Another recent phenomenon has been the introduction of gold-plated silver jewellery, which is becoming increasingly popular among fashion conscious consumers who frequently seek out new designs to match their attire (Focus 2).

Focus 2: Gold-plated silver jewellery gains traction

Gold’s usage in India for industrial purposes can be broadly divided into two categories – electronics and other industrial. The former covers the use of gold in electrical contacts and printed circuit boards (PCBs), while the latter includes plating and jari (gold thread).

Looking first at plating, over the last few years the tremendous growth in sales of gold-plated silver jewellery and articles, as well as imitation jewellery (gold-plated brass jewellery), has underpinned the increasing usage of gold potassium cyanide (GPC) in India.

However, not all of this has benefitted local GPC producers as most fabricators rely on imported material. For instance, in the first seven months of 2022 alone, India imported nearly 750kg of GPC, equivalent to 510kg of gold in fine-weight terms (gold accounts for 68.2% of GPC). To minimise costs, thrifting has emerged even in this segment, with the average thickness of gold coatings steadily declining. For instance, watches with a 5-micron (μm) plating thickness a decade ago are now using plating as thin as 0.1 μm.

The key barrier to local GPC production is the 15% import duty on gold bullion compared to that on gold compounds, which includes GPC at 11%. I believe that the government should work towards changing this inverted duty structure so that Indian producers can benefit from a level playing field.

Overall, the duty structure needs to be reviewed for industrial players to boost local industrial usage of gold. With the manufacturing of electronics and PCBs likely to rise and with the demand for plating also growing, there is a need to create a differential import duty structure for the industrial segment. In our view, this will help domestic fabricators, potentially opening up export markets and, in turn, help to cushion the negative impact of gold imports on India’s current account deficit.

Ketan Dhruv Director, Bangalore Refinery

Understanding regional, income and demographic differences

Regional demand

South India dominates Indian gold jewellery consumption, accounting for 40% of the country’s total jewellery demand.25 There has been little change in the regional share of gold demand over the past few decades. Southern demand remains high due to consumers’ affinity for plain gold jewellery, high per capita incomes and low poverty levels. Those living in states like Kerala have high incomes due to large financial inflows from the Gulf, especially from Keralites who are settled there. Tamil Nadu, meanwhile, is India’s IT and manufacturing hub. The notion of high gold consumption in South India was also supported by a TNS consumer research study in 2016. This revealed that Southern India had the highest gold ownership rates (76% of the respondents said they owned gold jewellery) and the highest rate of purchases in the past 12 months (60% of the respondents had purchased gold jewellery within that timescale).

While the South dominates the landscape, changes have emerged within the region. In particular, gold demand in Andhra Pradesh and Telangana has superseded other Southern states due to the inflow of investment since the state of Andhra Pradesh was sub-divided and Telangana was created. A robust policy framework and a good response mechanism have helped encourage investment in these two states. On the other hand, demand in Kerala has been negatively impacted due to the slowdown in the Gulf during COVID.

Southern India’s gold market is dominated by plain 22- carat gold jewellery, although demand for 18-carat diamond pieces has increased in recent years driven by younger consumers who are more open to buying diamond-set products. North and West India enjoy 20%26 and 25%27 of market share, respectively. In contrast, Eastern India has a market share of just 15%. The Northern and Western markets are quite diverse, with a preference for 23-, 22-, 18- and 14-carat items. Unlike the South and West, the Eastern part of the country remains economically underdeveloped due to a lack of connectivity and difficult terrain. However, during the last few years the government has focused on developing the Northeast, a policy that will likely result in a rise of market share in this region.

Rural India is the largest consumer of gold jewellery

Despite urbanisation and migration to urban cities, twothirds of India’s population are rural-dwellers. 28 But this figure is falling. In the last decade alone, the number of people living in rural India has dropped from 69% to 65%, which loosely translates into nearly 50m people migrating to urban areas.

For decades, gold has been the focal point for investment across many rural communities, in part due to a lack of awareness and penetration of banking products and services. Over the last decade, however, successive governments have focused on financial inclusion and banking services have become more widespread in rural areas. Nevertheless, despite this better access to bank accounts, gold remains the main investment choice and rural India’s gold demand has only dropped by a few percentage points over the last few years – from 60% to the current 55-58%.30 On the one hand, rapid urbanisation and erratic monsoons have impacted demand in rural India, but on the other, urbanisation in small towns has led to inward investment and rising land prices, which in turn has led to rising incomes.

The middle class is the primary gold consumer

Many international companies regard India as a key strategic market. At the heart of their ambitions is the Indian middle class, which has expanded from 150m in 2010 to an estimated 350m in 2021.31 Given India’s economic trajectory and young demographic this number will likely rise going forward. Considering the size of the middle class in India it is not a surprise that 50% of gold demand originates here. This is backed by the IGPC-IIMA household survey, which concluded that in 2020 about 51% of gold demand stemmed from consumers with incomes between Rs.200,000 and Rs.1,000,000 per annum. For those with incomes above Rs.1,000,000 the share was just 19%. On the other hand, consumers with an income below Rs.200,000 were responsible for 30% of gold demand. Consumers with an income above Rs.1,000,000 hold a large proportion of their investment in equity markets and real estate. Another interesting insight from the same survey was that over half of the middle class owned gold. In contrast, the percentage for higher income groups was just 17%, while about 32% of lowincome households owned gold.

The younger generation is driving changes in the Indian gold jewellery market

Over the last few years retailers have focused increasingly on the millennial population aged between 25 and 40 whose buying behaviour differs from their elders. Our 2019 research, carried out by Hall & Partners, found that around one-third of 18-24 year olds had bought gold jewellery in the 12 months prior to the survey; this percentage increased to 44% for 25-34 year olds. 33 Although 18-24 year olds believed that gold would hold its value in the long term, this was not enough to convince them of its desirability. In particular, young women in urban India had a much weaker emotional connection to gold jewellery than their elders.

Shifts in the buying behaviour and preference of millennials is instigating changes in the jewellery industry. Metals Focus’ interactions with various retailers over the last few years have revealed a strong demand for lightweight jewellery, especially in the daily wear segment. For example, today one can easily buy a chain or Mangalsutra in a weight of 5-8g, which would have been impossible five years ago. Furthermore, young consumers are looking at modern designs that can be paired with Western clothing. An increasing number of manufacturers and designers are becoming mindful of these needs and are creating product lines specifically for this audience. One case in point is Mia, an independent jewellery store floated by Tanishq, which focuses on lightweight, modern jewellery for the young woman. Another important change is the growth of diamond jewellery in the more traditional pockets of Southern India.

Silver and platinum jewellery do not pose a significant threat

Over the last decade there has been a steady increase in demand for silver and platinum jewellery, driven by the rising gold price as well as changes in consumer behaviour and product innovation. For instance, goldplated silver jewellery has emerged as one of the fastest growing segments in recent years. As a result, silver jewellery fabrication has increased from 700t in 2010 to 1,800t in 2021.34 Meanwhile, platinum jewellery demand has risen from 0.8t in 2010 to 3.9t in 2021.35 This has led to a debate across the trade as to whether the growth in silver and platinum jewellery is hurting the gold market.

While silver and platinum jewellery have made inroads, they have yet to pose a significant threat to gold jewellery consumption. Most silver jewellery in India consists of traditional pieces, such as anklet, toe and nose rings. The only silver segment that overlaps with gold is gold-plated silver jewellery and modern daily wear, in particular sterling silver pieces that are attractive to the younger consumer. The growth in the silver jewellery segment has largely been a function of the rising gold price; most modern silver jewellery features rose or yellow gold-plating, which suggests that it is being promoted as a low-cost alternative to gold for daily and occasion wear.

Over the last five years, traditional designs, such as temple and bridal jewellery, have also been made in gold-plated silver. Given the fact that many large independent and chain stores are now offering this jewellery in the silver section of their displays, this may have the potential to cannibalise gold jewellery sales. Gold-plated silver jewellery closely resembles real gold jewellery, especially as manufacturers are improving both design and finish of these items. We believe, however, that this is unlikely to emerge as an outright competitor to gold jewellery; it is more probable that it will gain only a small percentage of gold jewellery sales in the daily and occasion wear market, particularly if gold prices continue to outpace silver.

In terms of platinum, while this is a fast-growing market, in absolute terms it is extremely small. A consumer who buys platinum rarely does so as an alternative to gold. Platinum jewellery does, however, compete with gold in certain areas: most notable are products for men, such as bracelets, chains and love bands, which make up the fastest growth segment. It is also worth noting that platinum sales are driven by the younger generation, especially the middle and upper-middle classes, as it has always been marketed as a premium product aimed at evolved and aspirational consumers rather than targeted towards a mass market. However, Metals Focus believes that there is little understanding of platinum jewellery outside the young urban demographic and so gold comfortably retains its standing as the most popular aspirational purchase.

International jewellery trade

The gems and jewellery industry is a key contributor to India’s total exports

Given the high dependence on bullion and doré imports and the subsequent effect this has had on the country’s current account deficit (CAD), gems and jewellery (G&J) exports play an important role in cushioning at least some of this impact. For instance, G&J exports have accounted for 11% of India’s total exports; worth approximately US$25-40bn per year during the financial years 2012 to 2022.

These exports include several product segments, such as cut and polished diamonds, gold jewellery and medallions, rough diamonds, gemstones, pearls, synthetic stones and fashion jewellery. Of these, cut and polished diamonds accounted for over half of the total, while gold jewellery (plain and studded) accounted for 23% in 2021.

US overtakes UAE to become top jewellery export destination

Until the pandemic, the UAE had been the top export market for Indian jewellery, accepting nearly half of outbound jewellery shipments from India and peaking at 67%.37 But in 2021 the US, which had been the second biggest importer of Indian jewellery, saw its market share surpass the UAE. It is important to note that Indian exports to the US suffered when in 2007 the US withdrew the Generalised System of Preferences (GSP) status that applied to some key jewellery categories, notably gold rope necklaces and neck chains, and gold mixed link necklaces and neck chains.38 As a result, Indian exports attracted the most favoured nation (MFN)39 import duty of around 5-6% compared to the pre-2007 duty-free status. 40 This caused a substantial fall in Indian exports to the US: from $2.3bn in 2006 to $1.3bn in 2017.

Since 2019 trade tensions between the US and China have escalated and the imposition of tariffs on Chinese exports has benefitted Indian exports to the US. For instance, before the trade war, goods from both Hong Kong and China had long been subject to duties at the US MFN rate of 7%. 42 However, a “Section 301” list published in August 2019 subjected many Chinese consumer goods, including diamonds and jewellery, to an additional 10% US tariff. 43 This tariff has been changed a few times but today stands at 14.5%. Metals Focus’ discussions with exporters in India suggest that the duty advantage they have enjoyed over the last three years has enabled more Indian fabricators to better compete with China when it comes to US exports.

But while trade with the US increased, that with the UAE suffered due to the implementation of a 5% import duty in 2017 and 5% VAT from the beginning of 2018. This additional cost for Indian jewellery arriving in the UAE resulted in lower margins for Indian exporters and in turn contributed to the overall decline of gold jewellery exports to the UAE. To put this in context, from a peak of US$8.2bn in 2019, Indian exports to the UAE dropped to US$3.2bn in 2021.

Share of plain gold jewellery has declined in the export mix

Reflecting this market share shift among export destinations, the product mix of gold shipments has also changed. During the UAE’s earlier export market dominance, plain gold jewellery accounted for a larger share than studded gold jewellery (which is mostly studded with diamonds). However, over the last two years the greater influence exerted by the US has caused a marked reversal of this trend. To put this into perspective, in 2019 exports of plain gold jewellery – at US$8.7bn – were more than double that of studded gold jewellery, (US$3.4bn). 45 But by 2021 the growth in exports of studded gold jewellery (US$4.4bn) had outstripped plain gold jewellery (US$4.1bn). Importantly, the share of studded jewellery in India’s export mix increased from less than 30% in 2018 to 48% in 2021.

Removal of proposed tariffs by the US will further help Indian jewellery exports

Although exports to the US have grown, there has been ongoing uncertainty with regard to new tariffs levied by the US on Indian exports. To provide some context, in April 2021 the US Trade Representative (USTR) proposed retaliatory duties of 25% on six nations, including India, that had introduced e-commerce taxes on US companies, such as Amazon.47 This included 17 jewellery categories worth approximately US$50 million annually in exports, according to India’s Gem & Jewellery Export Promotion Council (GJEPC).48 In June 2021, after the conclusion of the one-year Section 301 investigations, the USTR suspended these tariffs for a period of up to 180 days to give additional time to complete the ongoing multilateral negotiations on international taxation, which were to take place at the OECD and the G20.

These tariffs were finally scrapped in November 2021 and, looking ahead, the removal of this uncertainty will help Indian exports to continue their aggressive push into the US market. 49 Recent India-US trade discussions have included a proposal to restore India’s beneficiary status under the US GSP system.

The India-UAE CEPA will help lift the UAE as a jewellery import destination

In February 2022 India and the UAE signed a landmark Comprehensive Economic Partnership Agreement (CEPA), which was implemented on 1 May 2022. The CEPA will cover in excess of 11,000 goods and services, affording more than 90% of Indian goods duty-free access to the UAE. This effectively makes jewellery exports to the UAE once again competitive by eliminating the 5% import duty. As mentioned earlier, the UAE had been the largest importer of Indian jewellery for decades until the US displaced it as the most important buyer of Indian jewellery in 2021. This has further implications, as the Emirates act as a global gateway for Indian jewellery exports; products exported there are not just consumed by the Indian diaspora but are also re-exported to the Gulf Cooperation Council (GCC) and parts of Africa.

While these are still early days for CEPA, there has already been a visible boost for Indian exports to the UAE. For instance, in the first four months of 2022 – before CEPA was in force – shipments averaged US$2.6bn per month; in the following three months (May to July) jewellery exports rose 30% to a monthly average of US$3.62bn.51

There is a need to develop new markets to boost exports

Over the last decade nearly 90% of India’s jewellery exports have flowed to just five major markets: namely, the UAE, the US, Hong Kong, Singapore and the UK. India exports jewellery to a total of 146 countries but most of these are extremely small customers. And although Indian jewellery is re-exported to many other destinations across Africa, the Middle East and Europe – through hubs such as Dubai and Singapore – the trade needs to develop newer direct export markets to help secure healthier margins. At present, the likes of Australia and Canada account for a small share of the total (2% and 1% respectively in 2021), but a more focused approach in these jurisdictions should help increase Indian exports as these locations also have a large Indian or Asian diaspora. The same is true for many countries in the Middle East, such as Kuwait, Qatar and Bahrain, where direct exports are currently very small and jewellery is shipped via Dubai.

Trade bodies also need to help focus a spotlight on Indian craftsmanship, as a large part of Indian jewellery is hand-made – a skill that is appreciated globally.

There are various government schemes for jewellery exporters

The government has launched many enterprise schemes that support exporters in areas such as banking, finance, skill development, technology and marketing. For instance, the Credit Guarantee Scheme provides small enterprises with straightforward access to financing, 52 offering a credit guarantee for loans of up to Rs.20m (US$0.24m) without the need for collateral or a third-party guarantee. The Market Development Assistance (MDA) Scheme is a government endowment available to all exporters that have delivered up to Rs.150m (US$1.8m) of exports in the preceding year. 53 This provides funding for export promotion activities, such as participation in trade fairs and exhibitions.

Given the high customs duty in India, it is imperative to provide duty-free access to gold for export purposes. In this regard, India has introduced the Advance Authorisation Scheme (AA). Put simply, a gold jewellery exporter can import gold without paying customs duty as long as they export jewellery within 120 days from the date of import of each consignment. This includes an “actual user” condition, which means that the gold cannot be transferred and must only be used in the premises of the license holder. Furthermore, a minimum value addition (the difference in value between the finished jewellery and the input raw material used to manufacture it) of 3.5% must be achieved for the export of plain jewellery and 6-7% for studded gold jewellery.55 Apart from that, a maximum manufacturing loss (wastage) of 2.5% is permitted for plain gold jewellery compared with 5% for studded gold items To prevent misuse of the scheme, licenses carry an obligation whereby exports recorded against the gold must be fulfilled – both in terms of quantity and value – within 90 days from accounting for value addition and manufacturing loss.

Another scheme that provides exporters with duty-free gold is the Duty Drawback Scheme (DBK). Unlike the AA scheme, where duty is exempt at the time of import, the import duty under DBK has to be paid at the point of import and subsequently claimed back after providing the applicable paperwork, such as a Bill of Export.

In 2019 the government also allowed Indian exporters to replenish gold equivalent to any they had sold at exhibitions abroad without paying duty, although this was stopped after the implementation of the GST in 2017 and the benefit for exporters who sold jewellery in this way was removed.

That aside, jewellery exporters are able to take advantage of gold metal loans if they can provide a bank guarantee or cash margin of ~110% of the notional gold value.

Despite these various government schemes, all of which are broadly supportive of gold jewellery exporters, jewellery exports in tonnage terms have faced headwinds in recent years. Key policy measures are needed to facilitate exports and alleviate the challenges exporters currently face (Focus 3).

Indian gold jewellery imports remain very small

 In contrast to exports, gold jewellery imports into India remain small. Primarily, imported jewellery is machine-made and is either high-end or from international brands that do not manufacture locally. The bulk of India’s jewellery imports are from the UAE, the US and Italy. Given India’s expertise in hand-crafted jewellery, handmade pieces rarely feature in India’s jewellery imports.

Round tripping continues despite government measures to reduce fictitious exports

While the vast majority of Indian exports are genuine, there remains an element that is not. The practice of round tripping (RT) involves exporting gold (jewellery, bars or coins) with the sole purpose of the product being melted down and re-imported into the original exporting country. This circular flow of gold inflates trade statistics and in India is used by firms to artificially boost their trading volumes and, in turn, secure less expensive finance on the basis of a higher turnover. Due to various government programmes to promote overseas trade, export credit is usually less expensive, and inflating exports through round tripping allows exporters access to more credit at lower rates than other companies would pay.

The government has introduced measures that, to some extent, curtail this practice by restricting exports of 24- carat jewellery. In its notification of 14August 2017, the government permitted only the export of gold jewellery containing gold between 8 and a maximum of 22 carats. 57 There have also been changes to value addition norms to help prevent RT.58 In setting value addition norms the government must perform a delicate balancing act because if they are too high they may negatively impact genuine jewellery exporters. In 2017 the government banned the export of 24-carat medallions and coins but subsequently allowed 22-carat versions to be exported with a value addition of 1.5%.

Despite the measures taken by the government, RT continues, particularly in the jewellery trade with the UAE, Hong Kong and Singapore.

Focus 3: Potential policy measures to facilitate exports

Despite the foreign trade policy having been broadly supportive of exporters of gold jewellery, jewellery export figures are declining in volume terms, even as they rise in value terms. This disparity is largely due to the rise in gold prices we have seen in recent years.

To examine the reasons for the decline in volume and explore the remedial measures to reverse the downtrend, the issue needs to be tackled on two fronts, i.e. issues related with the policy and its implementation, and those related to ‘Marketing India’.

• Policy related/operational issues

Tackling the scarcity of duty free gold

In India, nominated agencies import duty free gold for exporters. At a few ports, this gold is cleared the same day the shipment is landed (e.g., Delhi or Chennai). However, at some ports (e.g., Kolkata) custom officers delay the clearance of imported cargo for several days, often on some frivolous pretext. The resultant delay results in a cost escalation due to demurrage and interest costs. For instance, due to these reasons banks are unwilling to import duty free gold at Kolkata port. Instead, they prefer to use Chennai or Delhi where the clearing process is smooth and expeditious; banks later transfer the gold to Kolkata. This escalates costs for the exporter in Kolkata as the cost of stock transfer is also realised by the banks in the form of increased premiums compared to the London settlement. Moreover, interstate stock transfers attract Integrated Goods and Services Tax (IGST), which the exporter pays up front. This requires more investment and interest costs, which reduces the competitive edge of the exporter.

− Procedural problems in clearing gold supplied in advance by foreign buyers

Customs rules permit the import of gold by an exporter if the metal is being supplied by an overseas buyer as an advance against the export of jewellery of equivalent quantity in terms of fine gold. At the time of import, the importer has to furnish a bond backed by a Letter of Undertaking (LUT) or Bank Guarantee (BG) equivalent to the value of the imported gold and the import duty. The LUT/BG can be redeemed after submitting proof that the jewellery has been exported. Mumbai customs routinely clears such consignments, but the Kolkata customs refuse to do so on a subjective interpretation that the gold has been imported on a loan basis. Given the above mentioned issues, it is recommended that uniform procedures are implemented at all customs ports to support exporters.

− Foreign Trade Policy (FTP) should also allow the import of gold by an exporter if it is supplied by an overseas buyer post export of jewellery

The UAE is one of the biggest importers of Indian gold jewellery. The normal trade practice in the UAE is to settle gold jewellery payments plus value addition in cash.

However, to settle the bills of Indian suppliers, the UAE dealer has to first sell his stock of gold bullion (which he receives from his buyers) and then convert the local currency into USD to wire transfer the invoice amount to India. Due to this, the UAE dealer, at times, has to sell gold at a discount and also suffers a loss due to conversion currency charges, thereby increasing his transaction costs. Dealers in the UAE therefore insist on settling the bill by export of equivalent gold in fine terms and wire transferring dollars for value addition and freight and insurance. However, India’s FTP does not permit such transactions. The FTP should allow the import of gold supplied by an overseas buyer in advance as well as post receipt of shipments from India. The GJEPC recommended this about two years ago.

− Replacing Duty Drawback with Remission of Rates and Taxes

Exporting gold jewellery made out of duty paid gold and claiming duty drawback is not commercially viable, as the drawback duty rates are always lower than the rate paid while importing. The rates of duty drawback are revised and fixed for a period of six months, which does not work well for a commodity like gold whose price is usually quite volatile. In addition, nominated agencies do not supply duty free gold to small exporters who want to service overseas orders, which prevents newer players from entering this space. Over a period of time, the GJEPC has seen a drop in the number of companies exporting gold jewellery under the Micro, Small and Medium Enterprises (MSME) category, which has impacted exports from Domestic Tariff Areas (DTAs). The loss suffered on account of an insufficient duty drawback is also very high. The present duty drawback does not recognise this peculiarity.

Marketing related measures

It is a well-accepted fact within the Indian industry that to secure a greater share of jewellery exports the need for sustained and vigorous marketing of Indian jewellery is paramount. Though the GJEPC is mandated to promote Indian jewellery overseas, its activities are centred around holding B2B exhibitions in India or overseas markets and inviting or sending trade delegations. There is also a need to target consumers in overseas markets with better publicity through those avenues that are available today. Unfortunately, this is an extremely expensive proposition and the GJEPC alone cannot garner sufficient resources for B2C publicity.

It is therefore recommended that the government should consider supporting the industry to facilitate B2C events.

Pankaj Parekh

Regional Chairman- Eastern Region, GJEPC

This can involve crude jewellery in the form of bangles, which is close enough in form to be exported as jewellery but crude enough to carry negligible making charges. 60 After arriving at its destination, the jewellery is melted down and shipped back to India in bar form through official or unofficial channels. Prior to the measures taken in August 2017, RT focused on exporting jewellery in medallion form and without any value addition this wrongly inflated India’s jewellery export figures.

Special Economic Zones (SEZs) have played a key role in boosting jewellery exports

The Special Economic Zones (SEZs) Act introduced in 2005 has played a key role in boosting India’s exports over the last two decades. To provide some background, a SEZ is an area classified as a territory outside the customs territory of India for its authorised operations. The policy was announced in April 2000 with the main objective of providing an internationally competitive and hassle-free environment for exports. SEZs feature key facilities, such as banks and in-house customs, to allow for quick and easy clearance. By the end of 2021, 268 SEZs were operational in India.61 Of these, 15 are dedicated to gems and jewellery, and are home to over 500 manufacturing units. 62 Studded gold jewellery accounted for the highest share (47%) of net exports from the SEZs in 2021, followed by studded silver jewellery (27%), plain gold jewellery (11%), plain silver jewellery (7%) and polished lab-grown diamonds (3%).

For jewellery exporters, operations in the SEZ allow duty-free imports of gold and hence save considerable working capital and paperwork compared to exporting through the Domestic Tariff Areas (DTAs) where duty refunds must be processed separately. The latter not only takes more time but often offers a lower duty drawback than the actual duty paid, due to differential applicable tariffs. 64 That aside, DTAs also attract GST, which does not apply within export units based in the SEZs.

As a consequence, gold jewellery exports through SEZs grew from just 23% in 2015 to 57% in 2019. 65 However, the pandemic negatively impacted jewellery fabrication and by 2021 the share of exports via SEZs had collapsed to 11%. This drop can also be attributed, in part, to the fact that some of the tax advantages enjoyed in SEZs for nearly two decades (such as income tax exemption on export income), ended in 2020.

The government is considering the introduction of a new SEZ policy in the coming years, which should further ease the export process. Indian authorities have already introduced a draft policy – the Development of Enterprise and Services Hub Bill 2022, or DESH Bill – which is intended to be WTO compliant as it seeks to explicitly prevent concessions and subsidies for exporters located in the SEZs. Through this Bill, the government intends to go beyond export-oriented manufacturing and focus on broad-based parameters such as boosting additional economic activity, generating employment, and integrating various industrial hubs. Unlike in the SEZ ecosystem, the government now proposes to create development hubs where the focus is not limited to just exports but is inclusive of the domestic market. In addition, the custom duty would be paid only on the inputs used and not on the expensive final goods. Although the SEZ Act led to a notable improvement in India’s exports, interest in SEZs over the last few years has declined across many industries and as a consequence more than 100 units were de-notified between 2008 and 2020. Of the 425 currently notified SEZs, only 268 are operational. The new legislation should help address key hurdles, such as a lack of land for certain sectors and the complexity of operational models, and thus help improve the SEZs’ performance.

GST issues have stabilised after initial hiccups

The Goods and Services Tax (GST) that was introduced in 2017 initially created complications for Indian exporters as they had to pay 3% GST up front when they bought gold from nominated agencies, such as banks. This created an additional blockage of working capital for exporters as, apart from providing a bank guarantee for the customs duty, they also had to set aside additional capital for the GST, which in turn undermined their margins. However, following a period of lobbying by the industry, on 1 January 2019 the government announced that jewellery exporters would – under the scheme for “Export Against Supply by Nominated Agency” – no longer have to pay the 3% Integrated Goods and Services Tax (IGST) to nominated agencies. 68 There were conditions attached: namely that the beneficiary of the GST exemption must export their jewellery within 90 days, and the exporter must provide to the nominated agency a copy of the shipping bill or bill of export with a Goods and Services Tax Identification Number (GSTIN) within 120 days of receiving the gold.

Jewellery exports via e-commerce are a big positive for the industry

In June 2022 the government legalised jewellery exports through e-commerce platforms. 69 The new rules allow jewellery exports through a courier service, but only after receipt of full payment and with exhaustive evidence of the product being uploaded on the customs system: namely, photos of the export jewellery, product package/outer covering, product listing on the ecommerce platform and the hallmarking certificate. Reimports of physically damaged or defective jewellery exported via a courier are permitted, subject to criteria to prevent misuse. These criteria include conditions that the product must be returned through the same platform and using the same mode. In addition, the return e-commerce transaction for the jewellery should have been initiated by the same consignee to whom the jewellery was exported, and the total number of returns for the exporter must not exceed 5% of the total number of shipping bills in the same financial year.

Given the scope of global e-commerce, this should effectively open new markets for Indian exporters. Even small-sized firms, will now be able to increase their exports by selling via e-commerce platforms.

Outlook

During the last few years the Indian gold market has grappled with numerous changes, both in the regulatory environment and in the behaviour of consumers. And looking ahead, gold jewellery demand faces further challenges, particularly from changing demographics as younger generations of consumers are tempted by other products, be that different styles of jewellery or luxury fashion accessories. Gold jewellery demand has, however, remained resilient in India despite all these factors. And it will likely benefit from strong economic growth and further urbanisation as per capita income rises and the number of middle class consumers increase.

The Indian government has focused on strengthening manufacturing and exports, and this is likely to be enhanced in the coming years. Proposals to allow advance payments to overseas precious metal suppliers and the instigation of Mega Common Facility Centres (CFC) in the SEEPZ (in Mumbai) and Surat, could boost exports if implemented. Importantly, the CFCs would provide common manufacturing processes and a common pool of high-end capital-intensive state-of-theart machines. This will particularly benefit small manufacturers as they will have access to the latest technology and resources to help enhance quality and in turn improve export performance.

Courtesy: Retail Jeweller India News

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