The gems and jewellery industry is one of the key pillars of the Indian economy and has a strong cultural link with the people of India. As on January 2021, India’s gold and diamond trade contributed ~7.5% to India’s GDP and 14% to India’s total merchandise exports. Considering its potential for growth and value addition, the government declared the gems and jewelry sector as a focus area for export promotion.
In FY21, exports of gems and jewelry stood US$25.3 bn. The Indian jewellery sector exported US$3.37bn of merchandise in April 2021compared to only US$36.11 mn in April 2020, which shows the strong recovery of the sector since the beginning of COVID -19 pandemic.
USA is the largest importer of gems and jewelry from India with an estimated 45% of India’s exports being shipped to USA, followed by Hong Kong (~33%) and the UAE (~13%).
The government has taken various initiatives to promote the growth of the sector based on its potential for growth and value addition. It has permitted 100% FDI in the sector under the automatic route. According to the Department for Promotion of Industry and Internal Trade (DPIIT), India’s cumulative FDI inflows in diamond and gold ornaments were at ~ US$1.2 bn.
The global jewellery industry is undergoing a number of structural shifts, an understanding of which is important to capture the future growth potential of the industry.
Consumer demand is slowly moving from generic, non-branded jewellery to branded fine jewellery. According to estimates stated in a recent report by Mckinsey & Co., the branded fine jewellery segment is expected to experience strong double digit growth over the next 5 years, while the overall jewellery market is only expected to record single digit growth.
Further, there is expected to be a significant acceleration in adoption of online D2C channels compared to sales through traditional brick and mortar channels. By 2025, roughly 20% of jewellery sales are expected to come through online channels compared to only ~13% in 2019.
Lastly millennial consumers, who will represent a large chunk of the addressable market for jewellery over the next 5 years are expected to give greater importance to sustainability when buying jewellery.
On the domestic front, the government is showing strong support to the industry. It reduced import duty for gold and silver from 12.5% to 7.5% and platinum and pallidum from 12.5% to 10% to bring down the prices of precious metals in the local market. Hallmarking of gold jewellery is made compulsory. This is expected to create a gradual shift of consumer buying from unorganized players to organized retail chains. Financially sound and established brands are likely to see a number of opportunities to grow. Rising disposable income in India should support the strong growth of the domestic jewellery industry.