Gems And Jewellery Exports Losing Lustre On Global Constraints, Muted Demand

The gems and jewellery industry faces a challenging year which is unlikely to improve unless demand conditions improve from the U.S. and European markets, coupled with the reopening of the Chinese economy.

The data for April 2023—the first month of fiscal 2024—revealed a significant decline in gems and jewellery exports, reaching a value of $2.43 billion. This marked a sharp decline of 30% as compared with the previous year’s exports of $3.47 billion in the same category.

Among various merchandise export commodities, the gems and jewellery sector experienced the steepest annualised drop in April, plunging to its lowest in 17 months.  

According to Colin Shah, managing director at Kama Jewellery, the export basket could potentially drop by 10-15% if present market conditions persist throughout FY24.

The Indian government’s assessment of the trade data, outlined by the Director General of Foreign Trade Santosh Kumar Sarangi earlier this month, indicated that the demand scenario did not look “very optimistic” for the next 2-3 months.

However, it is anticipated that the situation will gradually improve from September onwards. This shift is expected to be driven by resurgence in demand from the U.S. and Europe, which are among India’s major export markets along with the reopening of the Chinese economy.

According to Yuvika Singhal, economist at QuantEco, certain categories within the gems and jewellery sector have experienced a more pronounced decline.

Exports in these categories have contracted in seven out of the past 10 months, indicating a decrease in volumes. Singhal attributes the contraction to the firming up of prices of precious metals in recent months.

Data released by the Gems and Jewellery Export Promotion Council shows that the export of cut and polished diamonds, which accounts for 59% of the overall gems and jewellery exports, stood at $22 billion in FY23. However, this figure reflects a 9.78% annual contraction.

The slowdown in import of rough diamonds during FY23 likely had an impact on exports of cut and polished diamonds, given the circular nature of the industry and especially for diamonds.

On the other hand, newer categories such as polished lab grown diamonds have seen a growth rate of 27.85%, coloured gemstones of 34.83%, and plain gold jewellery of 8.74% during FY23. Growth in the plain gold jewellery category is primarily attributed to the recently implemented India-U.A.E Comprehensive Economic Partnership Agreement.

Singhal said that in terms of geographical distribution, gems and jewellery exports to the U.S., Hong Kong, and Israel experienced a decline during FY23. However, higher exports to the U.A.E., Belgium, and Singapore helped cushion the overall decline.

The previous financial year witnessed a steady decline in imports, reflecting weaker demand amid soaring prices reaching record highs, she said. Raw materials in the form of gold, silver, and platinum bars have all seen a decline in FY23 on an annualised basis.

According to Jayanta Roy, group head and senior vice president at ICRA Ltd., the export of cut and polished diamonds remained subdued in FY20, recording 22% year-on-year decline to $18.7 billion. It was attributed to weak demand conditions and the global slowdown prevalent during that period before the pandemic hit.

However, the second half of FY21 witnessed a rebound in cut and polished diamond exports due to pent-up demand and limited avenues for spending on other luxuries—caused by travel restrictions and fiscal stimulus packages by various national governments, especially the U.S.

Roy said this trend continued into FY22 as well, driven by improved demand and high rough diamond prices, resulting in a 20% increase in the prices of polished diamonds. Consequently, the diamantaires reported a decade-high level of CPD exports amounting to $24.3 billion in FY22, Roy told BQ Prime.

However, the following year saw a moderation in demand due to inflationary pressure and the gradual unwinding of surplus liquidity in key regions of the U.S. and Europe.

According to Roy, during FY23, overall CPD exports declined by 9% to $22 billion. Although there was a 19% volume decline during the same period, it was partially offset by a 12% increase in average polished prices.

"Covid restrictions in China, which is the second largest consumer of CPDs accounting for 10% of the global demand, for a large part of FY23 accentuated the volume decline,” he said.

Higher prices and demand pressures, said Roy, could have led the potential shift towards downtrading to smaller-sized diamonds and lab-grown diamonds during FY23. The export of lab-grown diamonds surged from $0.3 billion in FY20 to $1.7 billion in FY23, with its share in total CPD exports rising to 7% from 2% in FY20.

Looking ahead, ICRA predicts further contraction of 8-10% in CPD exports from India in FY24, driven by a slowdown in demand from key consuming nations.

According to Shah—who is also former chairman of the Gem and Jewellery Export Promotion Council—the government should sign more Free Trade Agreements and promote the 'Made in India' brand to navigate the challenging economic period ahead.

India could benefit from enhancing its branding in key markets, as the country is not widely recognised globally for its manufacturing capabilities as compared with some of its neighbouring nations, he said.

The outlook for the year remains challenging, contingent on the improvement of the economic situation in the U.S. and China, as well as the resolution of the conflict in Ukraine.

Shah said that the industry would greatly benefit from support measures such as reduced import duties, increased FTAs with other countries, and the implementation of a progressive e-commerce policy.

Shah is also awaiting the government's announcement for the DESH bill, which aims to enhance the competitiveness of the Special Economic Zones in the country.

The economic outcome in the U.S., a key destination for India's gems and jewelry exports, will play a significant role in shaping the industry's prospects. Analysts will closely monitor the timing and extent of any anticipated slowdown in the U.S. economy as it could impact India's exports of gems and jewellery.

Singhal from QuantEco expects the positive impact of the one-year-old Comprehensive Economic Partnership Agreement with the U.A.E. to offer some relief.

“Given that Indian jewellery exports to the U.A.E. have become 5% cheaper in comparison to other competing nations like Malaysia, Turkey, etc., India has begun to enjoy benefits in the form of higher jewellery exports to U.A.E., which is expected to continue into FY24 as well,” she said.