New Delhi : In 2023, the gems and jewellery sector experienced a whirlwind of events, marked by record-high gold prices, corrected diamond prices, geopolitical tensions, and increased global central bank buying for investment purposes.
Despite the fluctuations, the industry witnessed higher values, outpacing volumes in several quarters. According to the latest India Development Update by the World Bank, the country emerged as one of the fastest-growing major economies in FY 2022/23, boasting a growth rate of 7.2 per cent.
Forecasts predict continued growth, with a projected expansion of 6.3 per cent in FY 2023/24. India's gems and jewellery exports soared to USD 37.73 billion in 2022-23, reaffirming its position as a global leader in the industry.
In 2022, India ranked first among exporters in cut and polished diamonds and second in gold jewellery, silver jewellery, and lab-grown diamonds. The sector also witnessed a surge in investments, with notable contributions such as the Rs 750 crore (USD 100 million) investment by Malabar Group in a gold refinery and jewellery unit in Hyderabad.
Cumulative foreign direct investment (FDI) inflows in diamond and gold ornaments in India amounted to USD 1,263.34 million between April 2000 and September 2023.
The Indian government has been proactive in fostering a conducive environment for the gems and jewellery sector.
Policies such as permitting 100 per cent FDI under the automatic route and reducing custom duty on cut and polished diamonds and coloured gemstones have attracted investments and stimulated growth.
The sector is poised for further expansion, with projections indicating that India's gold demand will surpass 800 tonnes in 2023.
Gold prices have been on an upward trajectory, defying expectations as they reached unprecedented levels in both domestic and global markets.
Factors such as the weakening dollar, expectations of interest rate cuts by the US Federal Reserve, and China's growing demand for gold have contributed to the surge in prices.
While this is advantageous for gold owners, higher prices pose challenges for consumers, particularly in countries like India where gold holds cultural significance. The impact extends to the economy, affecting India's current account deficit and trade balance.
Recently, gold prices have surged unexpectedly, defying conventional wisdom as they typically move inversely to the stock market.
Interestingly, both gold and stocks are currently reaching record highs. In India, gold has surpassed Rs 70,000 per 10 grams, while globally, it has exceeded USD 2,285.
Several factors contribute to this phenomenon. Firstly, the weakening of the dollar has made gold more appealing. Since gold is priced in dollars worldwide, its value tends to increase when the dollar depreciates.
Moreover, anticipation of interest rate cuts by the US Federal Reserve has heightened gold's attractiveness as an investment. Lower interest rates typically lead investors to seek refuge in gold, further bolstering its demand.
Additionally, China's rising demand for gold has played a significant role in driving up prices.
The Chinese central bank's accumulation of gold reserves, coupled with the growing inclination of young Chinese individuals towards gold purchases, has contributed to the surge in global demand.
The implications of this surge in gold prices are multifaceted. While it brings positive news for existing gold owners, as the value of their holdings skyrockets, it poses challenges for consumers, particularly in countries like India where gold holds cultural and ceremonial significance.
Varun Aggarwal, founder and managing director, Profit Idea, said, "Higher gold prices translate to reduced purchasing power for consumers, impacting their ability to afford gold jewelry and participate in cultural traditions."
He added, "Furthermore, the economic repercussions of elevated gold prices are noteworthy. A higher gold price widens India's current account deficit and influences the trade balance, affecting the overall economic landscape."
India's gems and jewellery export sector, accounting for approximately 27 per cent of global jewellery consumption in 2019, plays a pivotal role in driving economic growth.
With the market size expected to expand to USD 103.06 billion by 2023, India aims to achieve gems and jewellery exports of USD 100 billion by 2027.
The sector's resilience is evident in its contribution to India's merchandise exports, despite a 4.74 per cent decline in growth from 2021-22.
The Government of India remains committed to promoting exports, addressing challenges, and exploring new markets for the gems and jewellery sector.
Initiatives such as the gold monetization scheme revamp, reduction in import duties, and mandatory hallmarking underscore the government's support for industry growth.
Collaboration with other nations, promotion of patented designs, diversification of products, and emphasis on lab-grown diamonds are among the strategies outlined to propel the sector forward.
India's gems and jewellery sector stands at the cusp of unprecedented growth, fueled by robust exports, policy support, and strategic initiatives.
Despite challenges posed by fluctuating prices and geopolitical tensions, the industry remains resilient, poised to capitalize on emerging opportunities and solidify its position as a global leader.
As the sector continues to evolve, concerted efforts from the government and industry stakeholders will be crucial in driving sustainable growth and unlocking the sector's full potential.