Indian gem & jewellery industry
has been receiving unbearable blows post severe economic crisis in 2008. In fact it has been struggling to regain its full-fledged recovery since then.
Now the industry is facing brunt of liquidity crisis created by weakening of Indian rupee. Dwindling rupee has brought down domestic retail demand and tightened credit limiting purchasing power and export finance as a result of which there is yet another problem created for the diamond manufacturers here and that is of defaults and bankruptcies.
It is learnt reliably that some diamond manufacturers
in Surat, India’s biggest diamond centre have lost at least Rs. 250 crores in a total defaults of Rs 350 crores by local traders in Surat and Mumbai. Sources here say that more such cases are likely to come in light and as a result default fears have diluted sentiments of all concerned trade circles here.
It is a well known fact all over the world that diamond deals worth crores of rupees are sealed between diamond traders and manufacturers here on a small paper chit which has no binding in the eyes of law. Sources confirm that about 90% of such default cases result from the ‘fly-by-night’ operators (diamond traders who come to the market during the peak and disappear in the tough market situation) in Surat and Mumbai. Such operators generally take advantage of the recessionary period and wait till such time when some mediators come and settle their cases for 30-40% less of the defaulted sum. The worst part of the situation is that the diamond manufacturers cannot even register a police complaint in absence of any official records with them.
Moreover, the credit risks are rising fast as prices of polished diamonds have gone down by almost 20% in last seven months of current year following weak rupee and declining demand in domestic and foreign markets like China, Hong Kong and UAE.
On the other hand, there was some confusion and panic created in the diamond industry here after a manufacturing unit in Surat pulled down its shutters declaring an untimely “vacation.” The action resulted rendering nearly 5,000 workers jobless for at least three weeks. It is said that the reason behind this temporary “closure” is devaluation of the rupee against the dollar and lack of demand for diamond jewellery
in the international markets. Some of the factories are said to be temporarily shut down while some of them are said to have given mini vacation to their diamond workers.
It is monsoon season between June and September in India but unfortunately the monsoon has been poor here this year and the country has received at least 60% less rainfall up to the date. A weak monsoon may not only be high hopes for Indian farmers and economy but also for gold jewellers across the country as downfall in income would mean a direct impact on jewellery demand and sales.
As a result, gold demand at the beginning of festive season has not been encouraging with local buyers preferring to hold on to their cash at a time when a fear of possible draught threatens to dent their incomes. The country-side population in India accounts for 60% of the gold demand here. India's appetite for gold has already been affected this year from a weak rupee and unfavorable government policies.
Traders hope for the best:
After the presidential elections held last month in India, the country has now got a new finance minister in form of Mr. P. Chidambaram. The gem & jewellery industry circles here are expecting from him drastic changes in tax structure to get some sort of revival in sluggish markets. Till then most of the traders preferred to stay on the sidelines of the market awaiting a clear direction in gold prices.
The yellow metal has been swinging between 1,530 and 1,640 USD an ounce since May, so investors are waiting for policymakers to decide on if more stimulus measures are needed to back up the global economy.