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Jems and jwellery..

  1. 1. EXPORT-IMPORT BANK OF INDIA OCCASIONAL PAPER NO. 138 INDIAN GEMS AND JEWELLERY: A SECTOR STUDYEXIM Bank’s Occasional Paper Series is an attempt to disseminate the findings ofresearch studies carried out in the Bank. The results of research studies can interestexporters, policy makers, industrialists, export promotion agencies as well asresearchers. However, views expressed do not necessarily reflect those of the Bank.While reasonable care has been taken to ensure authenticity of information and data,EXIM Bank accepts no responsibility for authenticity, accuracy or completeness of suchitems. © Export-Import Bank of India Published by Quest Publications February 2010
  2. 2. CONTENTS Page No.List of Tables 5List of Exhibits 7List of Boxes 9Executive Summary 111. Introduction 302. Raw Material Base: Global scenario 323. International Trade in Precious Metals, Gems and Jewellery 414. Profile of Select Countries 475. Status of Precious Metals, Gems and Jewellery Industry in India 616. Market Analysis 847. Challenges and Strategies 93Annexure1. World Gold Demand 1082. Production of Diamond in the World and in India 1093. World Exports and Imports (2007) of Select Precious Metals, 110 Gems and Jewellery4. India’s Major Export Destinations and Import Source Countries 113 of Precious Metals, Gems and Jewellery (2008-09)5. Members of Kimberley Process 116 Project Team: Mr. S. Prahalathan, General Manager, Research & Planning Group Ms. Renuka Vijay, Manager, Research & Planning Group 3
  3. 3. List of TablesTable Title Pg. No.No.1. Consumer Demand for Gold in the World 312. Major Producers of Gold in the World 333. Major Producers of Silver in the World 394. Major Producers of Gemstones in the World 395. Major Producers of Platinum in the World 406. Brazil’s Exports of Precious Metals, Gems and Jewellery 487. Brazil’s Major Export Destinations and Import Sources of 49 Precious Metals, Gems and Jewellery8. China’s Exports of Precious Metals, Gems and Jewellery 509. China’s Major Export Destinations and Import Sources of 52 Precious Metals, Gems and Jewellery10. Exports and Imports of Diamonds by Israel 5411. Israel’s Exports of Precious Metal, Gems and Jewellery 5412. Israel’s Major Export Destinations and Import Sources of 55 Precious Metals, Gems and Jewellery13. Italy’s Exports of Precious Metals, Gems and Jewellery 5614. Italy’s Major Export Destinations and Import Sources of 57 Precious Metals, Gems and Jewellery15. Malaysia’s Exports of Precious Metals, Gems and Jewellery 5816. Malaysia’s Major Export Destinations and Import Sources 59 of Precious Metals, Gems and Jewellery17. Reserves of Gold in India 6418. Reserves of Gold in India - State-wise 6419. Trends in Foreign Exchange Reserves of India 6620. Export and Import of Gold Jewellery by India 6821. Exports of Gold Jewellery by SEZ/EPZ 6922. Reserves of Diamond in India 7023. India’s Exports and Imports of Diamonds 7324. Reserves and Resources of Select Precious Stones in India 7425. India’s Exports and Imports of Precious Stones 7526. India’s Exports and Imports of Platinum 77 5
  4. 4. Table Title Pg. No. No. 27. India’s Exports and Imports of Pearls 78 28. India’s Exports and Imports of Silver 79 29. Market Analysis of Articles of Jewellery (HS 7113) 85 30. Market Analysis of Articles of Jewellery (HS 711311) 85 31. Market Analysis of Articles of Jewellery (HS 711319) 86 32. Market Analysis of Articles of Jewellery (HS 711320) 87 33. Market Analysis of Articles of Natural and Cultured Pearls, 88 Precious or Semi-precious Stones (HS 7116) 34. Market Analysis of Articles of Natural and Cultured Pearls, 89 Precious or Semi-precious Stones (HS 711610) 35. Market Analysis of Articles of Natural and Cultured Pearls, 90 Precious or Semi-precious Stones (HS 711620) 36. Market Analysis of Imitation Jewellery (HS 7117) 91 37. Market Analysis of Imitation Jewellery (HS 711711) 91 38. Export Performance of Indian Gems and Jewellery Industry 94 39. Analysis of Major Export Destinations of India for 95 Gems and Jewellery 40. Financial Performance of Companies (April-September 2009-10) 96 41. Production Cost/Net Sales Ratio Across Manufacturing Sector 976
  5. 5. List of ExhibitsNo. Title Pg. No.1. Price Trends of Gold in Select Currencies 342. Company-wise World Diamond Production, 2007 35 (in terms of value and volume)3. World’s Largest Producers of Diamonds, 2007 36 (In Terms of Volume and Value)4. Diamond Pipeline 375. Value Chain of the Gems and Jewellery Industry 616. Value Chain of Diamonds and Precious Stones 627. Production of Gold in India 638. India’s Share in World Consumption of Gold Jewellery 659. India’s Gold Consumption 6610. Trends in Prices of Gold (January 2005- December 2009) 6711. Diamond Production in India 7012. India’s Major Export Destinations and Source Countries 72 for Diamonds (2008-09)13. Prices of Gold and Silver (December 2008-December 2009) 96 in India14. Prices of Platinum (Jan 2008-Dec 2009) 103 7
  6. 6. List of BoxesNo. Title Pg. No.1. World Diamond Council 382. Responsible Jewellery Council 443. Kimberley Process 454. Diamond Dollar Account Scheme 825. Exim Bank’s Role in Supporting Indian Gems and 83 Jewellery Industry6. BIS Certification Scheme for Hallmarking of Gold Jewellery 1017. Benefits of Becoming a Member of Hallmarking Convention 102 9
  7. 7. EXECUTIVE SUMMARYINTRODUCTION RAW MATERIAL BASE:Gems and jewellery are being used GLOBAL SCENARIOby the Indians since ages, for both Productionaesthetic, as well as investmentpurposes. India has the distinction Goldof being one of the first countries The major producer of gold in theto introduce diamonds to the world. world in the year 2008 was ChinaThe country was also one of the with a production of 295 metricfirst countries to mine, cut & polish, tonnes (growth rate of 7.3% overand trade in diamonds. The two the previous year); China held amajor segments of the gems and share of 18.9% of the total worldjewellery business in India are gold production of gold during 2008,and diamond jewellery. While a followed by South Africa (12.7%),predominant portion of gold USA (10.7%), Australia (9.9%) andjewellery manufactured in India is Peru (9.7%). Compared to 2007,for domestic consumption, a during 2008, countries such aspredominant portion of rough, uncut Indonesia (-23.7%), Australiadiamonds processed in India are (-8.5%), USA (-3.4%), Canadaexported either in the form of (-1%) and South Africa (-0.8%)polished diamonds or in the form witnessed a decline in production,of finished diamond jewellery. The and countries such as Chinagems and jewellery industry has an (7.3%), Russia (5.1%) and Peruimportant role in the Indian (2.9%), witnessed an increase ineconomy. With an estimated production of gold.consumption of 713 tonnes of gold During the third quarter of 2009,during the year 2008 (including the demand for gold has shown ajewellery consumption of 501 decline in almost all the segments.tonnes), India is one of the largest This may be partially owing to globalconsumers of gold in the world. economic slowdown and increase in 11
  8. 8. prices, reducing the disposable (19%), Mexico (15.8%), Chinaincome with the consumers. (13.7%), Chile (10.5%), and Australia (9.5%). There has beenDiamond an increase in the productionDuring 2007, Botswana was the compared to the previous year inlargest diamond producing country, almost all the major countries,in terms of value, estimated at US $ except USA and Australia, which2.96 billion, recording a decline in witnessed a decline of (–) 11.1%growth of 7.7% over the year 2006. and (–) 4.3%, respectively.Botswana constituted a share of In the case of gemstones (other25% in the world production of than diamond), major producers ofdiamonds. Botswana was followed the world include: Botswana (26.5%),by Russian Federation (21.7%), Russia (24.7%), Canada (19.1%),Canada (13.7%), South Africa Angola (10.6%) and South Africa(11.7%) and Angola (10.5%), as the (6.5%). Though most of the countriesworld’s largest producers of haven’t shown an increase in itsdiamond. Lesotho (growth of production in 2008, over 2007, some96.4%), Canada (17.5%) and Sierra countries such as Sierra LeoneLeone (13%) were countries, which (66.7%), Guinea (35%), Centralshowed impressive growth rates in African Republic (27%), and Angolatheir production of diamonds during (14.9%) have shown tremendous2007. increase in production in the year 2008, over the previous year. Brazil Russia was the largest diamond (-33.3%) and Australia (-0.4%) wereproducer by volume with a production the few major countries, whichof 38.3 million (23% of world’s showed a decline in production, overdiamond production) carats in 2007, the previous year.followed by Botswana (20%), Congo The largest producer of platinum(17%), Australia (11%) and Canada in the world was South Africa, holding(10%). In terms of growth in volume a share of 76.6% of the total worldof production, Guinea recorded production, followed by Russia115% growth in 2007 (over 2006), (12.5%), Canada (3.6%), Zimbabwefollowed by Canada (28%) and (2.8%) and USA (1.9%). However,Angola (5.7%). major producers such as South Africa (–7.8%), Russia (– 7.4%) andSilver, Gemstones and Platinum USA (– 4.1%) have shown a declineMajor producers of silver in the in their production in 2008, over theworld in the year 2008 include Peru previous year.12
  9. 9. INTERNATIONAL TRADE IN leading exporters, as well asPRECIOUS METALS, GEMS importers of precious stones (otherAND JEWELLERY than diamond) in the world in the year 2007. Hong Kong was theExports and Imports of largest exporter of precious stonesPrecious Metals and Stones (other than diamonds) with a share of around 17.1% of the total worldGold exports, and was followed by USAThe largest exporter of gold in the (13.2%), Switzerland (12.7%),world in the year 2007 was USA Thailand (12.2%), and India (9%).with a share of 19.9% in total world In the case of imports, the leadingexports, followed by Australia importers include: USA (26.5%),(15.9%), Canada (9.3%), Hong Hong Kong (14.4%), SwitzerlandKong (7.3%) and Peru (7.1%). The (9.2%), Thailand (7.2%) and Indiaworld’s largest importers of gold (6.3%).include Switzerland (25.7%), UK(19.6%), USA (8.4%), India (7.5%), Pearlsand South Africa (4.4%). In the case of Pearls, Hong Kong was the largest exporter, with theDiamond exports valued US $ 482.92 millionIsrael (with a share of 19.7%), constituting a share of 30.2%, inBelgium (19.6%), India (14.3%), the world exports of pearls in theUSA (12.8%), and UK (9.1%) were year 2007. Japan, China, Australia,the largest exporters of diamond in and French Polynesia were thethe world, in the year 2007. The other major exporters of pearls.largest importers of diamonds Hong Kong was the largestinclude: USA (17.7%), Belgium importer with a share of around(16.2%), India (13.1%), Israel 33.2%, followed by Japan (18.3%),(13%), and Hong Kong (12.9%). USA (15.8%), Germany (4.4%), andIndia was an exporter as well as Australia (4%).an importer of diamonds, with arespective share of 14.3% and Platinum13.1% in the world. This may be South Africa, constituting a sharebecause, India imports rough of 32.5% was the largest exporterdiamonds, for value addition, and of platinum in the world in the yearexports as cut and polished 2007. UK, USA and Germany werediamonds. the other major exporters. USA was also a major importer of platinumPrecious Stones constituting a share of 24.4% in theHong Kong, USA, Switzerland, world, followed by Japan (19.2%),Thailand and India were among the Germany (12.7%) and UK (8.6%). 13
  10. 10. Silver Articles of Imitation JewelleryMajor exporters of silver in the year World exports of articles of imitation2007 include: China, with a share jewellery were valued atof 15.9% in the world, followed by US $ 4967.03 million in 2007. MajorMexico (11.2%), Hong Kong (8.7%) exporters of imitation jewelleryand Germany (8.1%). USA, Hong include Hong Kong (21.9%), ChinaKong, UK, Germany and India were (17.2%), Austria (8%), Francethe major importers of silver in the (6.4%), and Italy (5.7%); majorworld. importers under this category include USA (19.6%), GermanyExports and Imports of (7.3%), France (7.3%), UK (6.4%),Jewellery and Italy (6.2%).Articles of Jewellery Profile of Select CountriesWorld exports of jewellery articlesmade of precious metals was Brazilvalued at US $ 42.5 billion in 2007; Brazil is known for its diversity andmajor exporters include: Italy volume of precious stones deposits(14.2%), India (11.9%), USA in its soil such as tourmaline,(10.5%), and Hong Kong (9.9%). aquamarine, agate, amethyst,Major importers of jewellery include: citrine, topaz and quartz; Brazil isUSA (23.7%), UAE (13.7%), Hong the only major source of imperialKong (9.1%), and Switzerland topaz and paraiba tourmaline in the(6.7%). world. During 2007, Brazil’s exports,Articles of Natural / Cultured under the HS Code 71 catetory,Pearls, Precious Stones consisted mainly of gold (valuedWorld exports of articles of natural US $ 790.88 million), followed byand cultured pearls, or made of precious stones (with a value of US $precious stones was valued at US $ 111.57 million), and articles of1945.99 million in 2007. Major jewellery and parts (with a value ofexporters include USA (76.4%), US $ 72.9 million). Major exportHong Kong (6.4%), China (5.4%), destinations of gems and jewellerySwitzerland (2%), and Japan include: USA, Germany, UK, Hong(1.3%); major importers under this Kong and Mexico, and the majorcategory include: Hong Kong import sources include Peru, South(15.7%), Switzerland (14.9%), UK Africa, Germany, Belgium and UK.(9%), Netherlands Antilles (9%), Gold was largely exported to USAand Japan (8.6%). (around 95% of the total exports of14
  11. 11. gold by Brazil). India was a major sub-item which was largely exportedsource country for import of (according to value) from China,diamonds, imitation jewellery and under the HS Code 71 category, wasarticles of natural and cultured articles of jewellery and parts ofpearls. precious metals with a share of 30.9% in the total exports of gemsChina and jewellery in the year 2007.China is one of the largest However, silver (42%), and articlesconsumers of gold, with gold of natural or cultured pearls andjewellery being the major item of precious and semi precious stonesdemand. In the year 2008, the total (30.8%) were the items whichdemand for gold in China was showed highest CAGR during the392.7 tonnes, a growth of 19.8%, period 2005 – 2007. Exports ofover the previous year. During the precious stones showed a declinethird quarter of 2009, the gold (-26.4%) over the years, from US $demand in China was 120.2 29.1 million in 2004 to US $ 15.8tonnes, a growth rate of 12% over million in 2007. Major destinations forthe corresponding quarter of 2008. China’s gems and jewellery exportsAfter diamond was found in the include: Hong Kong, USA, Belgium,three provinces of Liaoning, Switzerland and UK.Shandong and Hunan, the diamondindustry in China has been growing, Israelsince 1980s. The annual production Diamond jewellery is the main subof diamonds in 2008 was US $ 1.3 segment of Israel’s gems andmillion (69.4 thousand carats), an jewellery industry, followed by gold,increase of 18% in value (13% in silver and imitation jewellery. Thecarat) since 2006. China is one of artists in Israel make use of mostthe largest producers of silver in the of their skills, innovativeworld. In the year 2008, China technologies and techniques, whichproduced silver worth 2600 tonnes, enable them to offer their productsan increase of 1.6% over the at very reasonable prices.previous year; China, in the year Exports of diamonds, according2008, held a share of 13.7% in the to the Central Bureau of Statistics,world production of silver. Government of Israel, showed a China’s exports of gems and decline following the economicjewellery have grown by 21% per recession. During January -annum since 2005; from US $ 5.5 September 2009 there was a drasticbillion to US $ 8.1 billion in 2007. The decline in exports ranging above 15
  12. 12. 40%. The economic slowdown was However all the categories ofcited as the main reason for this precious metals, gems and jewellerydecline in exports. During 2007, the have witnessed an increase inexport of precious metals, gems and exports from Italy, with platinum andjewellery by Israel touched US $ 19.1 diamonds witnessing the highestbillion, achieving a CAGR of 7.5%, CAGR of 69.8% and 52%,during 2005-2007; and the imports respectively, during 2005 to 2007.of Israel were US $ 12.6 billion in The exports of platinum increased2007. Israel was a major exporter of from US $ 222.71 million to US $diamonds, which constituted around 642.17 million, and that of diamonds97% of the total gems and jewellery increased from US $ 56.83 million toexports, and around 2% was US $ 131.45 million during thisaccounted by articles of jewellery. period. The total exports of preciousMajor export destinations of metals, gems, and jewellery (HSdiamonds from Israel include: USA, Code 71) witnessed a CAGR ofconstituting a share of 48.5%, 17.4%, since 2005, showing anfollowed by Belgium (16.7%), Hong increase from US $ 6.3 billion to USKong (15%), India (4.8%) and $ 8.7 billion, in value terms. MajorSwitzerland (4.7%). Major source export destinations of Italy’s preciouscountries for imports of diamonds by metals, gems and jewellery industryIsrael include: USA (40%), Belgium include: USA, Switzerland, France,(24.8%), India (8.5%), Hong Kong UAE and UK, and the major source(8.2%), and UK (8.1%). countries for import of precious metals, gems and jewellery include:Italy USA, Switzerland, France, BelgiumItaly has a large gems and jewellery and Hong Kong. Major exportindustry, mainly located in the destinations of articles of jewelleryregions, namely, Veneto, Toscana, and parts include: USA (15.4%), UAELombardia, Lazio and Piedmont. (13.6%), Switzerland (10.2%),These regions have captured more France (6%) and UK (4.9%), and thethan half of the Italian market of major source countries for articles ofgems and jewellery. There are two jewellery and parts include:major clusters in Italy for gems and Switzerland (29.6%), Hong Kongjewellery which are located in (13.9%), France (8.8%), PolandVicenza and Arezzo. (7.9%), and Turkey (7.7%). Constituting a share of 69.5%,articles of jewellery and parts was the Malaysiamajor jewellery export item, under Malaysia is another major producerthe HS Code 71 category, in Italy. and exporter of gems and jewellery,16
  13. 13. with the industry having STATUS OF PRECIOUSconcentration in Penang. According METALS, GEMS ANDto industry sources, approximately JEWELLER Y INDUSTRY IN75-80 percent of the gold and INDIAjewellery in Malaysia aremanufactured or fabricated in GoldPenang, followed by Johor Bahru The total resources of gold in theand Kuala Lumpur, with activities country, as on April 2005, wereranging from manufacturing to estimated at 390.28 million tonnes.import, export, retail and wholesale. Out of these, 19.25 million tonnes were under the reserve category, During 2007, exports of precious and the balance 371.03 millionmetals, gems and jewellery from tonnes were under the resourcesMalaysia were valued at US $ 2.1 category. Besides, the totalbillion, of which 64% constituted resources of gold ore of placer typearticles of jewellery and parts, in the country were estimated atfollowed by gold with 19% share. 26.12 million tonnes. Karnataka hasOther export segments of gems and the largest known reserves of goldjewellery, namely, diamonds, in India followed by Rajasthan andprecious stones, pearls, and silver Kerala. Although there have beenconstituted marginal share in the significant ore resources, India’stotal gems and jewellery exports from gold production has shown aMalaysia. decline over the years. Major export destinations for India has been the largestgold include: Thailand (27.9%), consumer of gold jewellery in recentAustralia (13.9%), Hong Kong times, and in the year 2008, the gold(13.2%), China (8.9%), and Taiwan consumption in India was estimated(8.2%), whereas the major source to be 501 tonnes, accounting for 23%countries for gold include: Japan of world demand. In the third quarter(71.3%), Singapore (19.2%), of 2009, the consumption of goldIndonesia (3.2%), USA (2.9%), and jewellery in India has declined byHong Kong (1%). In the case of nearly 37% and the totalarticles of jewellery and parts, major consumption of gold has declined byexport destinations include: UAE around 45% over the same period in(71.2%), Singapore (21.3%), USA the previous year.(2.6%), China (1.7%), and HongKong (1%); and the major source During the year 2008-09, thecountries include: Singapore export of gold (or jewellery) has(60.1%), China (14%), Hong Kong witnessed a growth rate of 51.1%(7%), USA (4.8%), and Switzerland over the previous year, from US $(4.1%). 4.3 billion to US $ 6.5 billion, and the 17
  14. 14. imports had grown by 24.4%, from over the previous year. During theUS $ 17.1 billion to US $21.2 billion. year 2008-09, the exports ofMajor source countries for import of diamonds showed an increase ofraw gold by India include 10.6%, touching US $ 15.7 billion.Switzerland, constituting 44.6% of Export of crushed industrialthe total imports of raw gold in the diamonds showed a tremendousyear 2008-09, followed by Australia increase during this period. India(19.7%), UAE (19.6%) and South imported diamonds valuedAfrica (10.4%). Main export US $ 7.7 billion in 2007-08; duringdestinations of gold jewellery include the year 2008-09, the importsUAE, Singapore and Hong Kong. increased by 110% from US $ 7.7 billion to US $ 16.3 billion. In the caseDiamond of diamond exports, majorAccording to USGS data, diamond destinations were: Hong Kongproduction (gem and industrial) in (30.1%), UAE (22.5%), USAIndia in the year 2007 was 55 (17.6%), Belgium (11.4%), and Israel (5.0%). As regards diamond imports,thousand carats and has remained Hong Kong (27.6%), Belgiummore or less stagnant over the (24.4%), UAE (25.6%), UK (6.4%),years. As per United Nations and USA (4.8%) were the majorFramework Classification (UNFC) source countries for India.system, as on 1.4.2005, India hadtotal resources of around 4.5 million Precious stonescarats, of which 1.2 million caratswas reserves. By grades, about Although traditional Indian17% of resources are of gem gemologists have identified aroundvariety, 18% are of industrial variety, 84 precious and semi-preciouswhile bulk of the resources (65%) stones, nine stones, namely: Ruby,is placed under unclassified Emerald, Pearl, Diamond, Red coral, Zircon, Blue sapphire, Yellowcategory. Andhra Pradesh accounts sapphire, and Cat’s Eye, form thefor 40% of diamond resources, ‘Navratnas’ or nine gems. India wasfollowed by Madhya Pradesh more an exporter of precious(32%), and Chhattisgarh (28%). stones than an importer of the India imports rough diamonds same, and the difference betweenand process them for value addition these two being minimal. Duringand exports. As a result, India is a 2007-08, the exports of preciousnet exporter under this category in stones were US $ 280.8 million, anvalue terms. India exported increase of 6.5% over the previousdiamonds valued US $ 14.2 billion year, and in the year 2008-09,during 2007-08, an increase of 34% exports of precious stones18
  15. 15. witnessed a marginal decline of 2008-09, of around 6542% over the0.1%, over the previous year. previous year. During 2007-08, theImport of precious stones has imports had grown by 55% over thegrown marginally in the year 2008- previous year. UAE was the major09, by only 4.6% over the previous export destination for India’s exportyear. of raw platinum, constituting 49% of total exports; major source Major export destinations for countries for raw platinum importsprecious stones (other than by India include: UAE (78.7%),diamonds, which were not worked or South Africa (15.3%), Switzerlandgraded) include: USA (30.5%), Hong (2.7%). UAE and Australia were theKong (22.7%) and Thailand (13.9%). major export destinations ofThe source countries for the same platinum jewellery constituting ainclude: Thailand (23.3%), Hong combined share of 43.8% and theKong (19.1%), and Zambia (13.9%). major source countries for importsIn the case of articles of precious by India were Thailand and Belgiumstones other than diamonds (natural/ with 69% and 13% share,synthetic), the major export respectively.destinations were USA (38.8%),Germany (23.9%), and Switzerland Pearls(9%), and the source countries for During 2007-08, the exports ofthe same include: Hong Kong pearls had witnessed an impressive(27.8%), Sri Lanka (22.2%), and performance, with the export ofGermany (16.7%). cultured pearls showing a growth of 125%. During the year 2008-09,Platinum the imports of pearls declined byThe total resources of platinum 7.8% over the previous year. Majorgroup of metals in India, as on April export destinations of pearls2005, was only 14.2 tonnes; the include: USA (38.6%), UAEentire known resources are located (14.1%), Austria (12.0%), Japanin Niligiri, Boula-Nuasahi and (7.5%), and Hong Kong (10.8%).Sukinda areas in Orissa. The The source countries for import ofexports of platinum which had pearls by India include Japanwitnessed an increase of 175% in (34.5%), China (31.9%) and Hongvalue terms, during 2007-08, over Kong (21.1%).the previous year, showed atremendous increase of 1804% Silverduring the year 2008-09, over the During 2007-08, exports of silverprevious year. Imports also showed (unwrought and semi-manufactureda high increase during the year form) witnessed a negative growth 19
  16. 16. of 35.5%, and silver jewellery the financing requirements ofwitnessed a growth of 19.5%. various enterprises. The creditHowever, during the year 2008-09, facilities are available for financingexports of silver (unwrought and at all stages of export cycle ofsemi-manufactured form) grew by Indian firms. The Bank’s Lines of27.4%, and export of silver Credit (LOC), extended tojewellery witnessed a growth of commercial banks, financial87%. During the year 2008-09, institutions, regional developmentIndia imported unwrought silver banks, and entities overseas, servevalued around US $ 2 billion, a as a market entry mechanism togrowth of 79% over the previous Indian exporters, and provide ayear. Import of silver jewellery safe mode of non recoursewitnessed a growth of 80.6%. Major financing option to Indian exporters.export destinations of silver include: Apart from LOC, the Bank offersUSA (21.3%), Switzerland (29.7%), buyer’s credit and supplier’s creditUK (13.8%), Iran (11.5%), and for exports on deferred paymentJapan (9.3%), and that of silver terms. These facilities helpjewellery include: USA (38.1%), companies, especially the SMEs, toChina (12.6%), UAE (10.4%), Hong offer competitive credit terms to theKong (7.1%), and UK (5.8%). The buyers and to explore newsource countries for import of silver geographical India include: UK (38%), China Exim Bank has extended(15.4%), Russia (11.8%), supplier’s credit, pre shipment credit,Switzerland (11.6%) and Hong post shipment credit, and foreignKong (3.8%); and that of silver currency packing credit (FCPC), tojewellery include: USA (35.2%), the firms engaged in the gems andItaly (17.6%), Hong Kong (12.3%), jewellery sector, among others. EximUAE (12.4%), and Thailand (6.1%). Bank has signed an MOU with the Indian Diamond Institute, whichROLE OF EXIM BANK IN envisages development of humanSUPPORTING INDIAN GEMS resources through professionalAND JEWELLERY INDUSTRY training, and thereby support theExim Bank of India seeks to create export efforts of the industry. Eximan enabling environment to Bank has provided grant to IDI forpromote two-way transfer of upgrading LRS (Laser Ramantechnology, trade and investments Spectroscopic Machine) equipmentand operates a wide range of in order for the Institute to providelending, service and support training to carry out in-depth studyprogrammes. The Bank has a of all types of gems. The MOU willvariety of loan products to cater to also enable the institutions to20
  17. 17. exchange literature, data, concentrate on markets like: UKinformation and research output on and Switzerland for articles ofthe gems and jewellery industry, and jewellery of gold and platinumalso help in exchange of foreign group of minerals (HS codeexperts between the two institutions, 711319); USA, Germany, UK andin organizing their respective training Switzerland for articles of jewelleryprogrammes. made of silver (HS code 711311); USA, Japan, Switzerland and UAEMARKET ANALYSIS for articles of natural and culturedThe product-country analysis shows pearls (HS code 711610);that USA, EU, Japan and Hong Switzerland, UK and Japan forKong are the leading importers of articles of semi-precious stonesmajor gems and jewellery products. (HS code 711620); and USA,These countries have been Germany, France, UK and Italy for articles of imitation jewellery (HSsourcing their jewellery import code 7117).requirements mainly from countriessuch as Hong Kong, China, Italy, India may leverage its traditionalUSA, Germany and UK, of which craft-skills, low-cost labour, andUSA, UK and Germany are fabrication techniques in some of theimporters as well as exporters. jewellery products (such asHong Kong appears to be more of processing of small-sizeda trading hub in the Asian continent. diamonds), and replicate suchIndia served as one of the major advantages in the production of othersource countries for diamonds, as products, and thereby become aalso for articles of jewellery for global player across the gems andselect countries. In the case of jewellery, India is one of the majorimporters of rough diamonds, and CHALLENGES ANDone of the major exporters of cut/ STRATEGIESpolished diamonds. India’s exportsof cut and polished diamonds have Challengesbeen to all major markets in theworld. India is also a major exporter Unorganised Sectorof articles of jewellery and parts, Being an unorganized sectorand the exports have been to all hampers the ability of Indian gemsthe major importers in the world. and jewellery Industry to emerge asHowever, some of the markets are a world-class supplier. According tonot well-explored by Indian gems a FICCI study, the gold processingand jewellery exporters. For industry has around 15,000 players,example, India may endeavour to with only around 80 units having 21
  18. 18. revenues over US $ 5 million. India steep increase, since the last fewis also home to around 4,50,000 years, which has been changinggoldsmiths, over 100,000 gold the buying pattern of consumers.jewellers, along with about 6,000 During the period December 2008 -diamond-processing players and December 2009, the price of gold8,000 diamond jewellers. per ten grams, has increased from Rs 13,445 to Rs 16,870, showingImpact of Recession an increase of 26%. Even thoughThere had been a loss of market the price of silver had witnessed afor gems and jewellery exports due decline after February 2009, itto recession and global economic again started rising after April 2009.slowdown. During 2007-08, there From Rs 17,847 per kg inwas growth in export of gems and December 2008, the silver pricejewellery by 23%, over the previous increased to Rs 27,430 per kg inyear. The growth trend continued December 2009.even in 2008-09 during which theexports showed a growth of 44% Possible Threats from Chinaover the previous year. and from Other Countries Producing Diamonds However, during the period April-September 2009-10, due to Although India currently enjoyseconomic slowdown, the demand for dominance in the world’s cut andgems and jewellery shrank, which polished diamond market, Chinaresulted in export slowdown for India. may emerge as a rival in the long-Following the economic slowdown, term, mainly because of theasset price devaluations, job losses availability of cheap labour, growingand decrease in disposable income domestic demand, and also thehave happened, along with improvement in the quality ofescalation in gold prices, which have workmanship in the country. It maychanged the consumption pattern of be added that increasing numbergems and jewellery. Further, the of diamond processors are settingeconomic slowdown has also up their facilities in China due toaffected the consumer buying these reasons. Also, there haspattern, with growing demand for been growing pressure in majorsingle-line jewellery, low-carat diamond producing countries injewellery, and gems-studded Africa, like Botswana, Namibia andjewellery. South Africa, to gain further economic benefits from diamondRise in Prices value chain, seeking investments inAs mentioned earlier, the prices of cutting and polishing industry. Suchprecious metals, especially gold developments may affect theand silver, has been witnessing prospects of India.22
  19. 19. Low Level of Technology quality, reducing wastage,Absorption introducing new designs andUtilization of hi-tech, speedy and concepts, and innovation in supplyefficient machinery and software chain management and marketing.has led to the gradual replacement The gap between hi-end machinesof traditional / manual methods of and unskilled labour can also bepolishing, manufacturing and reduced with innovative R&Ddesigning of gems and jewellery. solutions.Proactive players in the Indiangems and jewellery industry are Strategiesalways on the lookout for better Branding of Jewellerytechnology for their units. However,such technology absorption is Branding of jewellery plays a veryrelatively low in Indian gems and important role in the jewelleryjewellery industry, due to the small market as it assures consumerssize, and unorganized nature of that the products are of certainmajority of the players in this quality, durability, and conform toindustry. Also, mere absorption of several social, environmental andtechnology may not be helpful, durability standards. Brandwithout a proper blend of manual promotion is therefore one of thelabour with machinery, to provide best modes of market penetration.ethnicity to the end-products. Though in its nascent stage,Usage of semi-skilled and unskilled branded jewellery in India has beenworkforce in operation of such high- showing encouraging signs, despiteend machines may result in tough competition. According to ansignificant under-utilization of the estimate by the Indian Brand Equitymachinery / technology, and may, Foundation (IBEF), the market forat times, cause losses in branded jewellery is expected tooperations. Skill development is reach US $ 2.2 billion by 2010.therefore very essential for proper Some of the jewellery brands inreclassification of the workmen in India are DeBeers, D’damas,this industry. Tanishq, Oyzterbay, and Gili. In order to gain market share,R&D and Product Development branded jewellers may have toAnother major challenge faced by come up with designs thatthe industry is the low level of R&D customers want, and win the trustintensity, and facilities for and confidence of consumers byundertaking R&D and product hallmarking and demonstrating thedevelopment. Proper R&D solutions purity of the gold used by them. Towould help in improving product compete with traditional players, 23
  20. 20. branded players may also find quality products even in rural areas.some ways to differentiate India may also consider becomingthemselves from others. While the a member of Internationalsuccess of a particular brand may Hallmarking Convention, and derivedepend on differentiation and the benefits of such Convention.affordability, quality will be a keyelement in sustaining a brand. In Increasing Market Presence ofaddition, branded players require Platinum Jewelleryfocused advertising and astute With the gold prices increasing atsalesmanship to compete with record levels, consumers havetraditional jewellers. started showing interest in ornaments made from other metals,Hallmarking of jewellery like platinum and palladium. The fallHallmarking is the accurate in prices of platinum has alsodetermination and official recording triggered the demand for platinumof the proportionate content of jewellery across the world, includingprecious metal in jewellery. India. During the past one year theGovernment of India has been prices of platinum have witnessedprotecting the interests of decline, which is one of the mainconsumers from adulteration, and reasons for the consumers to optirregular metal quality, and for platinum jewellery. During Marchlaunched the Hallmarking Scheme 2008, the price of platinum stoodthrough Bureau of Indian at US $ 2005 per troy ounce (31.1Standards. The principal objectives gms), and during November 2008,of the Hallmarking Scheme are to the price fell down to as low as USprotect the consumers against the $ 844 per troy ounce. As offraud of adulteration and to oblige December 2009, the price ofthe manufacturers to maintain legal platinum stood at US $ 1448 perstandards of fineness. However, it troy ounce. As the demand foris difficult to make Hallmarking of platinum jewellery is increasing andgold jewellery mandatory across the especially when the consumercountry due to insufficient number preferences are shifting to platinumof certification centres. At present, jewellery, due to rise in price ofthere are over 100 BIS-recognised gold, Indian jewellers need toassaying and hallmarking centres in diversify their product range andIndia, which are centred around concentrate more in theTier – 1 and Tier – 2 cities. It is manufacture of platinum-basedproposed that India may consider jewellery. Leading retail jewellersexpanding the network of should also add exclusive space forhallmarking infrastructure across platinum jewellery in their stores.the country, and help penetrate According to industry observers, at24
  21. 21. present, facilities for ore packaging are very important inbeneficiation and extraction of marketing such products. Focusingplatinum group metals do not exist on such product lines would enablein the country. Technology also has the players in establishing an edgeto be imported for extraction of over their competitors. Playersplatinum group of metals, which should also have desire for productshould be promoted in India innovation to catch-up with the change in consumer trends.Change in Product PortfolioAs the recession is reducing the Continuous Skill Developmentdemand for jewellery products Human resource is one of theworldwide, it is necessary to critical factors for the gems anddiversify the export product jewellery industry, as the industryportfolio, and concentrate more on is labour-centric. Non-availability oflesser-priced jewellery, such as skilled workers is often cited as oneimitation, fashion or costume of the major reasons for the inabilityjewellery. Indian gems and jewellery of the players in this industry toindustry may also diversify the scale up their operations. Thus, theexport product portfolios on the players need to constantly upgradelines of the change in perception the skills of the workmen, throughof the consumers. It may be training and retraining strategies, tomentioned that the new-age enhance their productivity. Some ofconsumer perceives jewellery as a the focus areas for imparting skill-personal accessory that manifests upgradation include: technologythe wearer’s attitude, personality interface of design and productand lifestyle. Significant development, innovation inopportunities may be available to manufacturing process andthe players in the Indian jewellery reduction of wastage,industry, if they leverage and standardization and quality control,package the products with the and international networking andblending of tradition and culture in marketing. In addition to firm leveldesigns that are universal and strategies, the industry also needscontemporary in their aesthetic to address the challenge of skillappeal. While the products with development collectively. Supply ofsuch blend would stand out with craftsmen / artisans that comeresemblance of cultural and through generations need to beregional identity, they may not complemented by fresh talents,significantly look as ethnic products. trained in a professional manner, toIn other words, the products should have access to wider talent a new-look piece, but with The industry may establish closetraditional inspiration. Branding and linkages with the existing learning 25
  22. 22. centres, and help them in imparting feasible under conventionalskills / training that are needs of methods. Technology also helps thethe hour. At present, there are few fabricators to churn-out the new-institutes which provide training in design products in a much speedyjewellery design, viz., Indian way.Institute of Gems and Jewellery,Indian Diamond Institute, and Establishing Diamond BoursesNational Institute of Design. Also, At present, one diamond bourse,the National Skill Development Bharat Diamond Bourse, has beenCorporation (NSDC), initiated by the established in Mumbai.Government of India, is expected Nevertheless, the traders have toto give thrust on skill development visit Antwerp, Israel, Hong Kongof various sectors, including gems and other locations to buy and selland jewellery. It is also important rough and polished diamonds.for the players to accomplish Establishment of more diamondgreater degree of professionalism bourses will give a major fillip toand establish appropriate India to emerge as an internationalorganization structure that would diamond trading hub, and also toattract and retain best talent in theindustry. make trading in diamonds easier for the players in India. It will beTechnology Upgradation easier to get the rough diamonds through these trading centres andPlayers in this industry need to also for getting buyers for the cutadopt latest technology, including and polished diamonds.the ICT interface in all aspects, Government of India has alreadystarting from mining, cutting and announced the plan for establishingpolishing, to fabrication and more diamond bourses to make themarketing. Technological solutions country an international trading hubare available for several of the to boost the gems and jewellerychallenges faced by the gems and exports. These diamond boursesjewellery industry; these solutions are expected to provide a singleinclude: innovations in designs platform for traders and it would(through CAD/CAM machinery), help in making India a tradingquality and finish of products(through infrared, photo-typing, centre for diamonds.etching, wax-casting), cost controlin process and reduction of Increase in Explorationwastage (laser cutting, hollow-tube Activitiesprocessing). Imparting of As per United Nations Frameworktechnological solutions may reduce Classification, total resourcescost and time, which may not be (reserves and remaining resources)26
  23. 23. of gold ore (primary) in India as on states is required to be boosted forApril 1, 2005, were estimated at discovering new economically390.28 million tonnes, of which only viable kimberlite / lamporite rocks19.25 million tonnes are placed for indigenous production ofunder reserve category, and the, 371.03 million tonnes, underresources category. Besides, it has Enhancing Visibility throughbeen estimated that the total Continuous Participation inresources of gold of placer type in International Exhibitionsthe country would be around 26 Continuous participation inmillion tonnes. However, resource international trade shows andaugmentation and gold production jewellery exhibitions is veryhave not been significant in India. important for the Indian gems andThis may require increase in jewellery industry; such strategyexploration activities with would help in projecting the industryimprovements in technology and as a player in entire jewellery valueknow-how. According to a report bythe Planning Commission, chain, from cutting, polishing,Government of India, the mining fabricating of wide variety of plainsector also requires improved and stone-studded jewellery.method of narrow-vein-mining for Participation in internationalachieving full economic benefits. exhibitions would also helpIntroduction of small-scale mining establish new business links for theculture in the gold industry is also Indian gems and jewellery industry,another requirement with adoption and would also pave the way forof modern gold extraction the industry to develop furthertechnology. Cluster mining of small business links to enhance the levelgold deposits may also deserve of their innovations in designs andconsideration and should be technology. This platform wouldencouraged. The metallurgical also help in attracting andtechnique for extraction of platinum mobilizing the major buyers ofgroup of elements from low grade gems and jewellery internationally,ore is also required to be sourced and also provide exhibitors withfrom developed countries, in order learning opportunities and exposurefor India to become a producer of to new markets and trends. Theplatinum. Efforts should be made recent foreign trade policy hasto increase the production of rough increased the personal jewellerydiamonds from India to partly meet carriage limit to US $ 5 million, fromthe requirement of Indian diamond US $ 2 million, and the limit in casecutting and polishing industry. of personal carriage, as samples,Exploration activity in different for export promotion tours, has also 27
  24. 24. been increased from US $ 0.1 It is expected that the spike inmillion to US $ 1 million. This would gold and silver prices might changealso help the industry promote the consumer preferences, as alsoexports, as the industry will be able impact their demand pattern. Theto showcase more jewellery in growing consumer sophistication,exhibitions abroad. decline in investment-driven (jewellery) demand, and competitionCONCLUSION from other luxury goods are also likely to impact the demand patternWorld gems and jewellery industry of gems and jewellery. Further, theis on the verge of transformation consumer awareness anddue to both supply-side and consciousness, generated throughdemand-side factors. Some of the the vigilant measures adopted byrecent trends in the global gems various national Governments, areand jewellery industry include: expected to drive the demand forfragmentation of rough diamond branded and hallmarked jewellery. Atsupply positions; emergence of new national level, India has beenmining areas; beneficiation adopting various strategies to copemovement in mining countries, and with the global trends in gems andever-growing raw material prices. At jewellery business. World Goldfabrication level, fashion and styles Council and the Indian gems andhave been changing significantly; jewellery industry have jointlythe ratio of cost of raw materials introduced international jewelleryto sales has been coming down, designing competitions among thesqueezing the profit margin of the Indian artisans to generatefabricators. There has been awareness about the skills of Indianvolatility in raw material prices; the artisans in the global market, as alsoglobal slowdown led to low capacity to expose Indian artisans to newutilization in this industry bringing design developments emergingdown the margins in the jewellery around the world. There have beenmanufacturing. In some countries, initiatives taken by many designingincluding India, some of the centers to train Indian jewellers inprocessing units have been partially international manufacturing andshut down due to slackening designing skills. This is expected todemand. As a result, the value enhance demand as well as sales forchain in the gems and jewellery the Indian gems and jewelleryindustry may witness consolidation; industry.only select major players are likely Indian gems and jewelleryto cope with the trends and sustain industry is increasingly building itsthe competitive pressures. ability to produce full range of sizes28
  25. 25. and qualities of stones, utilizing not interface would also provide theonly the low-cost and abundant necessary platform for firms to scaleworkforce, but also advanced up their operations. While severaltechnologies. The industry has been such measures have been taken, atseeking further growth through firm-level, industry-level, andprocessing of larger size stones and Government-level, there exists still amanufacture of diamond jewellery. need to strengthen the position ofBoth the Government and the gems India in the global market placeand jewellery industry have through a concerted strategy,recognized the use of IT in diamond addressing the challenges of raw-clusters in order to enable seamless material sourcing, technologicalflow of information between the infusion at processing stage,functional areas, right from job adoption of dynamism in design andcontractors to small / mid-sized firms, product development, andto large, integrated units. The IT sustainable market entry approach. 29
  26. 26. 1. INTRODUCTION Gems and jewellery are being domestic consumption, aused by the Indians since ages for predominant portion of rough, uncutboth its aesthetic as well as diamonds processed in India isinvestment purposes. India has the exported either in the form ofdistinction of being one of the first polished diamonds or in the form ofcountries to introduce diamonds to finished diamond jewellery.the world. The country was alsoone of the first countries to mine, The gems and jewellery industrycut & polish, and trade in diamonds. has an important role in the Indian economy. With an estimated The gems and jewellery sector consumption of 713 tonnes of goldmay be categorized broadly into: during the year 2008 (including Gemstones: Diamonds, jewellery consumption of 501 coloured stones - precious, tonnes), India is the largest semi precious and synthetic consumer in the world. (Table 1). stones; Apart from its historical religious Jewellery – plain gold, significance, gold is valued as an studded, silver, costume important savings and investment jewelleries; and vehicle. Even in present times, gold Pearls. remains the bride’s wealth and is the The two major segments of the preferred jewellery worn by womengems and jewellery business in India in India irrespective of their religiousare gold and diamond jewellery. belief. Buying of gold and jewelleryWhile a predominant portion of gold is an important part in every stage ofjewellery manufactured in India is for the life-cycle of an Indian citizen.30
  27. 27. Table 1: CONSUMER DEMAND FOR GOLD IN THE WORLD (in tonnes)Countries 2007 2008 % Change Jewellery Net Total Jewellery Net Total Jewellery Net Total retail retail retail investment investment investmentIndia 551.7 217.5 769.2 501.6 211.4 713.0 -9.1 -2.8 -7.3China 302.2 25.6 327.8 326.7 65.9 392.6 8.1 157.4 19.8USA 257.9 16.6 274.5 188.1 78.9 267.0 -27.1 375.3 -2.7Europe — 9.6 9.6 — 242.7 242.7 — 2428.1 2428.1excludingCISTurkey 188.1 61.1 249.2 153.2 57.1 210.3 -18.6 -6.5 -15.6Saudi Arabia 117.9 9.0 126.9 108.9 13.5 122.4 -7.6 50.0 -3.5Vietnam 21.4 56.1 77.5 19.6 96.2 115.8 -8.4 71.5 49.4UAE 99.8 7.5 107.3 100.0 9.5 109.5 0.2 26.7 2.1Russia 85.7 — 85.7 91.4 — 91.4 6.7 0.0 6.7Egypt 67.8 0.7 68.5 74.3 2.5 76.8 9.6 257.1 12.1Indonesia 55.2 0.3 55.5 55.9 2.9 58.8 1.3 866.7 5.9Italy 59.1 — 59.1 50.3 — 50.3 -14.9 — -14.9Other Gulf 40.0 2.9 42.9 34.8 2.9 37.7 -13.0 — -12.1UK 50.1 — 50.1 37.2 — 37.2 -25.7 — -25.7Taiwan 14.7 7.4 22.1 12.2 8.7 20.9 -17.0 17.6 -5.4Hong Kong 14.2 1.0 15.2 17.0 1.0 18.0 19.7 0.0 18.4Japan 30.6 -56.3 -25.7 28.2 -39.4 -11.2 -7.8 -30.0 -56.4Total Above 1956.4 359.0 2315.4 1799.4 753.8 2553.2 -8.0 110.0 10.3Others 444.3 51.3 495.6 386.4 64.8 410.3 -13.0 26.3 -17.2World Total 2400.7 410.3 2811.0 2185.8 818.6 2963.5 -8.9 99.5 5.4SOURCE: World Gold Council 31
  28. 28. 2. RAW MATERIAL BASE: GLOBAL SCENARIOPRODUCTION Growth in production of gold is expected to remain flat in 2009, asGold increased production in China,Gold is produced from mines in Canada and Peru may not be ableevery part of the world, except to offset decline in production inAntarctica, where mining is not South Africa, USA, Indonesia andpermitted. From a level of 25701 Australia.metric tonnes in 2001, world goldmine production has declined to World gold demand primarily2327 metric tonnes in 2008, mainly comprises of jewellery fabrication,because of decline in production in retail investments, industrial andthe major gold producing countries, dental uses and exchange tradedlike South Africa, USA and funds. In the year 2008, world goldIndonesia. demand in volume terms declined for The major producer of gold in the jewellery consumption and industrialworld during 2008 was China with a and dental purposes; however, goldproduction of 295 metric tonnes demand for investment purposes(growth rate of 7.3% over the showed an increase over theprevious year); China held a share previous year (Annexure: 1).of 18.9% of the total world production However, in value terms (USD), theof gold during 2008, followed by demand for gold has shownSouth Africa (12.7%), USA (10.7%), considerable growth in 2008,Australia (9.9%) and Peru (9.7%). indicating the significant priceCompared to 2007, during 2008, increase during this year.countries such as Indonesia(-23.7%), Australia (-8.5%), USA During the third quarter of 2009,(-3.4%), Canada (-1%) and South the demand for gold has shown aAfrica (-0.8%), witnessed a decline decline in almost all the production, and only countries This may be partially owing to globalsuch as China (7.3%), Russia (5.1%) economic slowdown and increase inand Peru (2.9%) witnessed an prices, reducing the disposableincrease in production of gold. income with the consumers.1 SOURCE: USGS (U.S. Geological Survey)32
  29. 29. Table 2: MAJOR PRODUCERS OF GOLD IN THE WORLD (In metric tonnes) Countries 2007 2008 % Change %Share in 2008 China 275 295 7.3 12.7 South Africa 252 250 -0.8 10.7 USA 238 230 -3.4 9.9 Australia 246 225 -8.5 9.7 Peru 170 175 2.9 7.5 Russia 157 165 5.1 7.1 Canada 101 100 -1.0 4.3 Indonesia 118 90 -23.7 3.9 Uzbekistan 85 85 0.0 3.7 Ghana 84 84 0.0 3.6 Papua New Guinea 65 65 0.0 2.8 Chile 42 42 0.0 1.8 Mexico 39 41 5.1 1.8 Brazil 40 40 0.0 1.7 Other countries 471 440 -6.6 18.9 World total 2383 2327 -2.3 100.0 SOURCE: USGS Gold exchange traded funds investor can purchase gold ETFhave gained popularity with investors shares through a stockbroker withoutacross the world and these were being concerned about suchfloated in the market in 2003. These problems.funds and additional similar funds arenow listed in the exchanges across World gold prices have shownthe countries. Holdings of ETFs an upward trend over the years. Gold(Exchange Traded Funds) were prices, which stood at US $ 274.5estimated to be US $ 8.8 billion in per ounce on December 31, 2001,2008, and US $ 1.3 billion in the third increased to US $ 869.8 per ouncequarter of 2009. Investing in gold in on December 31, 2008 showing athe traditional manner is not CAGR of 15.5%.The price hasaccessible and carries higher costs increased further to US $ 1,192 perowing to insurance, storage and ounce on December 1, 2009. Exhibithigher markups. The claimed 1 shows the gold prices in selectadvantage of the ETF is that the currencies. Almost all the currencies 33
  30. 30. Exhibit 1: PRICE TRENDS OF GOLD IN SELECT CURRENCIES SOURCE: World Gold Council (based on London pm fix)have shown an upward trend since in terms of value, estimated at USthe year 2000. In Indian rupees, the $ 2.96 billion, recording a declineprice of gold, which stood at in growth of 7.7% over the yearRs. 12,803 per ounce on December 2006. Botswana constituted a share31, 2000, increased to Rs. 42,374 of 25% in the world’s production ofper ounce on December 31, 2008. diamonds. Botswana was followedThe price has increased further to by Russian Federation (21.7%),Rs. 55,228 per ounce on December Canada (13.7%), South Africa1, 2009. The main reason for the (11.7%) and Angola (10.5%) asincrease in prices of gold was the other world’s largest producers ofstrong consumer demand, especially diamond. Lesotho (growth ofwith the change in investor behaviour 96.4%), Canada (17.5%) and Sierraand consideration of gold as safe Leone (13%) were countries, whichinvestment, post financial crisis. witnessed impressive growth rates in their production of diamondsDiamond during 2007.During 2007, Botswana was the Russia was the largest diamondlargest diamond producing country producer by volume, with a34
  31. 31. production of 38.3 million (23% of the De Beers, Trans Hex, Rio Tinto,world’s diamond production) carats BHP Billiton and a hand-full of otherin 2007, followed by Botswana companies which use their cartel(20%), Congo (17%), Australia (11%) power to control the supply ofand Canada (10%). In terms of diamonds on the wholesale marketgrowth in volume of production, ( diamond pipeline ), therebyGuinea recorded 115% growth in controlling and stabilizing prices.2007 (over 2006), followed by The process under the diamondCanada (28%) and Angola (5.7%) pipeline is given in Exhibit-42:(Annexure: 2). Including its mines in South Silver, Gemstones andAfrica, Namibia and Canada, De PlatinumBeers is the world’s largest diamond Major producers of silver in themining company, constituting 42% of world in the year 2008 include:the total production by value and Peru (19%), Mexico (15.8%), China29% of the total production by (13.7%), Chile (10.5%) andvolume (Exhibit 2). Other major Australia (9.5%). There has beenproducers include Rio Tinto, Alrosa an increase in the productionand BHP Billiton. compared to the previous year in almost all the major countries,The Diamond Pipeline except USA and Australia, whichThe trade in gem-grade rough witnessed a decline of (–) 11.1%diamonds is primarily controlled by and (–) 4.3%, respectively. Exhibit 2: COMPANY-WISE WORLD DIAMOND PRODUCTION, 2007 SOURCE: Indian Gems and Jewellery Sector, ICRA Sector Analysis2 SOURCE: 35
  32. 32. 36 Exhibit 3: WORLD’S LARGEST PRODUCERS OF DIAMOND (2007) SOURCE: Indian Gems and Jewellery Sector, ICRA Sector Analysis
  33. 33. Exhibit 4: DIAMOND PIPELINE1. Rough diamonds are sent directly from De Beers mining operations in Africa (#1), or secondary mining producers in Canada and Russia, to De Beers’ Diamond Trading Company (DTC) in London, Gaborone, Kimberley and Windhoek, for sorting and resale. The rough stones are separated into 16,000 categories based on size, color and quality, then divided by human or automated sorters into individual lots called “boxes.”2. The DTC is part of the De Beers Group supply-chain known as the Central Selling Organization (CSO), which combines (“aggregating”) supplies of rough diamonds from multiple sources into one wholesale market (#2).3. The DTC holds a sale called a “site” or “sight”, ten times per year, in London and Johannesburg, where De Beers sells the “boxes” to its select group (“supplier of choice”) of 125 “sightholders” (#3) or diamond manufacturers, cutters, and retailers. De Beers (DTC) sets the price of each box in advance, determining the quantity and quality that each site-holder will receive. A ‘sight’ can have a value of between US $ 500,000 to US $ 2,000,000.4. The sightholder then transports the box of rough diamonds back to diamantaire firms (cutting and polishing factories) located around the world (#4). India cuts the vast majority of small stones (0.20 carats or less) in Mumbai and Surat, while large stones are primarily cut in Antwerp, Tel Aviv, Ramat Gan, and New York. Other major cutting centers are located in Johannesburg, China, and Thailand.5. The diamonds are then re-sold from the cutting and polishing (manufacturing) centers to wholesalers (Diamond Bourses), or to jewellery manufacturers (#5) around the world. Both traders and manufacturers may sell diamonds “upstream” and “downstream” through the diamond pipeline, to take advantage of market fluctuations. Once the diamonds are set into jewellery, they are sold to retailers or directly to the customers.SOURCE: 37
  34. 34. Box 1: WORLD DIAMOND COUNCIL Amid growing concern over human rights violations and atrocities committed against innocent victims in diamond producing countries, the World Federation of Diamond Bourses, and the International Diamond Manufacturers Association passed resolution creating the World Diamond Council (WDC). The resolution called for the newly formed WDC to include representation from the diamond industry itself, and also from among countries where diamonds play a major economic role, and from the international banking sector. The mandate for the World Diamond Council is the development, implementation and oversight of a tracking system for the export and import of rough diamonds to prevent the exploitation of diamonds for illicit purposes, such as war and inhumane acts. Human rights activists refer to diamonds exploited in this way as “blood” or “conflict” diamonds. As a result of the commitment and resolve of WDC leaders and members, significant strides have been made towards resolving and reconciling the issues threatening the diamond industry because of “conflict” diamonds. Various committees, under the aegis of WDC, were formed for efficient functioning to cover areas such as legal, technical, legislative, steering, finance, banking, information and research. The world diamond industry does not condone the exploitation of diamonds for illicit or immoral purposes. Nor, will it acquiesce to outside efforts to disrupt the importance that diamonds are to the established and emerging economies around the world. Rather it is the goal of the diamond industry, working through the World Diamond Council, to work openly and in partnership with the people of the world whenever and wherever such challenges occur. SOURCE: World Diamond Council In the case of gemstones (other the only countries, which showed athan diamond), the major producers decline in production compared toin the world include: Botswana the previous year (Table 4).(26.5%), Russia (24.7%), Canada(19.1%), Angola (10.6%), and South The largest producer of platinumAfrica (6.5%). Though most of the in the world was South Africa holdingcountries haven’t shown an increase a share of 76.6% of the total worldin its production in 2008, over 2007, production, followed by Russiasome countries such as Sierra Leone (12.5%), Canada (3.6%), Zimbabwe(66.7%), Guinea (35%), Central (2.8%) and USA (1.9%). However,African Republic (27%) and Angola the major producers such as(14.9%) have shown tremendous South Africa (–7.8%), Russiaincrease in its production in 2008 (– 7.4%) and USA (– 4.1%) haveover the previous year. Brazil shown a decline in their production(– 33.3%) and Australia (– 0.4%) were in 2008 over the previous year.38
  35. 35. Table 3: MAJOR PRODUCERS OF SILVER IN THE WORLDCountries 2007 2008 % Change %Share in 2008Peru 3500 3600 2.9 19.0Mexico 3000 3000 0.0 15.8China 2560 2600 1.6 13.7Chile 1900 2000 5.3 10.5Australia 1880 1800 -4.3 9.5Poland 1200 1300 8.3 6.9USA 1260 1120 -11.1 5.9Canada 800 800 0.0 4.2South Africa 70 70 0.0 0.4Other countries 4630 4600 -0.6 24.2World Total 20800 20890 100.0SOURCE: USGS Table 4: MAJOR PRODUCERS OF GEMSTONES IN THE WORLDCountries 2007 2008 % Change %Share in 2008Botswana 25000 25000 0.0 26.5Russia 23300 23300 0.0 24.7Canada 18000 18000 0.0 19.1Angola 8700 10000 14.9 10.6South Africa 6100 6100 0.0 6.5Congo 5400 5400 0.0 5.7Namibia 2200 2200 0.0 2.3Guinea 815 1100 35.0 1.2Ghana 720 720 0.0 0.8Sierra Leone 360 600 66.7 0.6Central African Republic 370 470 27.0 0.5Guyana 350 350 0 0.4Australia 231 230 -0.4 0.2Tanzania 230 230 0 0.2Cote d’lvoire 210 210 0 0.2Brazil 300 200 -33.3 0.2China 100 100 0 0.1Other countries 210 210 0 0.2World total 92596 94420 2.0 100.0SOURCE: USGS 39
  36. 36. Table 5: MAJOR PRODUCERS OF PLATINUM IN THE WORLD Countries 2007 2008 % Change %Share in 2008 South Africa 166000 153000 -7.8 76.6 Russia 27000 25000 -7.4 12.5 Canada 6200 7200 16.1 3.6 Zimbabwe 5300 5600 5.7 2.8 USA 3860 3700 -4.1 1.9 Columbia 1400 1700 21.4 0.9 Other countries 3490 3500 0.3 1.8 World total 213250 199700 -6.4 100.0 SOURCE: USGS40
  37. 37. 3. INTERNATIONAL TRADE IN PRECIOUS METALS, GEMS AND JEWELLERYEXPORTS AND IMPORTS OF addition, and for exports, as cutPRECIOUS METALS AND and polished diamonds.STONES Precious StonesGold Hong Kong, USA, Switzerland,The largest exporter of gold in the Thailand and India were among theworld, in the year 2007, was USA largest exporters, as well aswith a share of 19.9% in the total importers of precious stones (otherworld exports, followed by Australia than diamond) in the world in 2007.(15.9%), Canada (9.3%), Hong Hong Kong was the largestKong (7.3%) and Peru (7.1%). The exporter of precious stones (otherworld’s largest importers of gold than diamonds), with a share ofinclude: Switzerland (25.7%), UK around 17.1% of the total world(19.6%), USA (8.4%), India (7.5%) exports, and was followed by USAand South Africa (4.4%). (13.2%), Switzerland (12.7%),(Annexure: 3). Thailand (12.2%), and India (9%). In the case of imports, the leadingDiamond importers include: USA (26.5%),Israel (with a share of 19.7%), Hong Kong (14.4%), SwitzerlandBelgium (19.6%), India (14.3%), (9.2%), Thailand (7.2%), and IndiaUSA (12.8%), and UK (9.1%) were (6.3%).the largest exporters of diamond inthe world, in the year 2007. The Pearlslargest importers of diamondsinclude: USA (17.7%), Belgium In the case of Pearls, Hong Kong(16.2%), India (13.1%), Israel (13%) was the largest exporter, with theand Hong Kong (12.9%). India was exports valued US $ 482.92 million,an exporter as well as an importer constituting a share of 30.2% in theof diamonds with a respective world exports of pearls in the yearshare of 14.3% and 13.1%, in the 2007. Japan, China, Australia, andworld. This may be because, India French Polynesia were the otherimports rough diamonds, for value major exporters of pearls. 41
  38. 38. Hong Kong was the largest importer Articles of Natural / Culturedwith a share of around 33.2%, Pearls, Precious Stonesfollowed by Japan (18.3%), USA World exports of articles of natural(15.8%), Germany (4.4%), and and cultured pearls, or made ofAustralia (4%). precious stones was valued at US $ 1945.99 million in 2007. MajorPlatinum exporters include USA (76.4%),South Africa, constituting a share Hong Kong (6.4%), China (5.4%),of 32.5% was the largest exporter Switzerland (2%) and Japanof platinum in the world in the year (1.3%); major importers under this2007. UK, USA and Germany were category include: Hong Kongthe other major exporters. USA was (15.7%), Switzerland (14.9%), UKalso a major importer of platinum (9%), Netherlands Antilles (9%),constituting a share of 24.4% in the and Japan (8.6%).world, followed by Japan (19.2%),Germany (12.7%), and UK (8.6%). Articles of Imitation Jewellery World exports of articles of imitationSilver jewellery were valued at US $Major exporter of silver was China, 4967.03 million in 2007. Majorwith a share of 15.9% in the world, exporters of imitation jewelleryin the year 2007, followed by include Hong Kong (21.9%), ChinaMexico (11.2%), Hong Kong (8.7%), (17.2%), Austria (8%), Franceand Germany (8.1%). USA, Hong (6.4%), and Italy (5.7%); majorKong, UK, Germany and India were importers under this categorythe major importers of silver in the include USA (19.6%), Germanyworld. (7.3%), France (7.3%), UK (6.4%), and Italy (6.2%).EXPORTS AND IMPORTS OFJEWELLERY SELECT GLOBAL TRENDS One of the recent major trendsArticles of Jewellery witnessed by the gems andWorld exports of jewellery articles jewellery industry, due to themade of precious metals was economic slowdown, has been thevalued at US $ 42.5 billion in 2007; increase in recycling of gold ormajor exporters include: Italy usage of gold scrap. Key focus has(14.2%), India (11.9%), USA been the surge in the levels of gold(10.5%), and Hong Kong (9.9%). scrap coming back to the market.Major importers of jewellery include: With mine production on a decliningUSA (23.7%), UAE (13.7%), trend and the outlook relativelyHong Kong (9.1%), and Switzerland benign, scrap levels are likely to(6.7%). remain as the primary supply of42
  39. 39. gold. Selling of gold jewellery has New technologies, oftenprovided the consumers with adapted from other industries, areaccess to the much-needed funds finding their way into jewelleryduring the economic crisis. In the manufacturing. The use of Computerprice sensitive markets, the profit- Aided Design (CAD) is fast growing,taking motive behind recycling and is increasingly being coupledactivity has been very strong, with Rapid Prototyping, whichhighlighting the intrinsic value of enables new designs to reach thejewellery and the strength of the market more quickly, therebysavings/investment aspect of gold increasing competitiveness. Laserjewellery purchases. Cash flow technology is also being increasinglychallenges have forced consumers utilised, not only for repair ofto sell some of their assets, defective castings and brokenincluding their jewellery, to raise the jewellery (it enables gem setmuch-needed cash. Increase in jewellery to be repaired without therecycling activity has been both a need for removing the gemstones),western and non-western but also for decoration (laserphenomenon, although volumes in engraving), cutting and hallmarking.the non-western markets have Examples of technologies beingcontinued to dominate. In western adapted from other industries includemarkets, the primary motivation cables (in place of conventionalbehind recycling of gold has been chains), knitted wires and powderdistress selling, while in the more metallurgy processing.traditional non-western markets, the According to World Goldprimary motive has been profit- Council, in the first quarter of 2009,taking. total demand for gold increased by Research by World Gold Council 38% to reach a level of 1016 tonnes,suggests that jewellery buyers valued US $ 29.7 billion. The overallacross the world recognize that gold demand for gold has fallen in the thirdjewellery is both a store of value, as quarter of 2009, by 34% over thewell as a means of adornment. corresponding period of previousNevertheless, the investment and year, along with investment demandadornment motives tend to overlap which witnessed a decline of 46%strongly in traditional markets, such over the corresponding period ofas the Middle East (including Turkey) previous year. The impact of highand India, largely due to the very gold prices, at a time of globalstrong cultural values underpinning economic crisis, led to a widespreadjewellery ownership; bar and coin decline in consumer demand for golddemand in these regions account for jewellery, by 30%, compared to thea relatively modest proportion of total same period in 2008. In India,demand for gold. despite economic pressures and 43
  40. 40. sustained increase in gold prices, diamond industry, which is large sub-second quarter gold demand segment of global gems andrecovered from the exceptionally jewellery industry faced demandweak levels witnessed in the slump following the global economicprevious quarter, but remained well crisis. Diamond prices in the world,below the levels of a year before. like many other commodities,Total gold off-take in India was down bottomed out, forcing the diamondby 48% during the first three majors (such as De Beers, Zaoquarters, with jewellery, the largest Alrosa) to cut down production andcomponent of demand, falling supply of rough diamonds to boostby 36%. up the prices. Mining was halted at many mines, which were put on Following the global financial maintenance during this period. Thecrisis, the growth environment for the most prominent example was theglobal gems and jewellery industry move by Debswana, jointly owned byremains uncertain. The world De Beers and the Government of Box 2: RESPONSIBLE JEWELLERY COUNCIL The Responsible Jewellery Council (RJC) is an international, not-for-profit organization established to reinforce consumer confidence in the jewellery industry by advancing responsible business practices throughout the diamond and gold jewellery supply chain. The Council aims to build ‘a community of confidence’ across every step of the diamond and gold jewellery supply chain in all geographies, and among businesses, both large and small. It seeks to work with a wide range of stakeholders in defining and implementing responsible jewellery practices through the RJC’s certification system. The certification process starts with the Council accrediting conformity assessment bodies and auditors who verify RJC member organizations for conformance with RJC Code of Practices. Membership opportunity is open to all businesses and associations participating in the diamond and gold jewellery supply chain and / or engaged in activities that have a potential impact on consumer confidence in diamond or gold jewellery. In 2005, a group of 14 organisations from a cross section of the diamond and gold jewellery business came together to form the Council for Responsible Jewellery Practices. These founding organisations were ABN AMRO, BHP Billiton Diamonds, Cartier (part of Richemont), World Jewellery Confederation, Diamond Trading Company (part of De Beers), Diarough, Jewelers of America, National Association of Goldsmiths (UK), Newmont Mining, Rio Tinto, Rosy Blue, Signet Group, Tiffany & Co., and Zale Corporation. SOURCE: Responsible Jewellery Council44