Understanding the Indian Gems and Jewellery Industry

Part 2

This is the second part of our in-depth series on the Indian jewellery industry. We will now look at the more intricate facets of the bridal jewellery segment, the evolution of the wedding industry, and trends that are an indicator of the times and wholesale market dynamics. We shall see the regulatory framework governing this industry, including key policies and schemes, and gain some insight into the organized and unorganized segments that constitute the wholesale market. This has given an in-depth overview of various important factors that help in shaping this sector of gems and jewelry in India.

Overview of the Bridal Jewellery Segment

Evolution of the Wedding Industry and Market Trends

Weddings are one of the largest industries in India. It is estimated that nearly 10-13 million weddings, big or small, take place every year in India. Indian weddings have a strong influence on traditions and culture. Weddings have changed considerably in the past couple of years, whether a celebrity wedding or mid-range or low-range Indian wedding. In any form of marriage, gold jewellery is very essential to be used by the bride since it is part of the customs and religious beliefs associated with the wedding ceremony.

It is seen that wedding jewellery constitutes the lion's share of the total wedding expenditure at 24%, followed by expenditure on catering. On average, from 30 grams to 250 grams of gold is consumed in marriages all over India in the form of gold bangles, mangal sutra, nose rings, necklaces, etc. The total cost of these ranges from Rs 1,50,000 to Rs 13,00,000.

Segments of the Indian Jewellery Industry

Gold jewelry is the most popular jewelry in India; this is because it is considered to bring in good fortune to buy gold on important occasions. Gold, in Indian culture, goes inseparably with festivals, customs, and religious beliefs. Weddings and festivals are the two main occasions for buying gold jewelry in India. South India accounts for 41% of the total jewellery demand followed by West India with a 23% share.

While the share of rural and semi-urban areas in gold jewellery consumption is about 60%, it is 40% for urban areas; the former commands a better share on account of a higher population base in the country. Additionally, in these regions, jewelry was the primary investment and preferred over conventional bank investments due to a lack of literacy and banking networks.

Based on the type, the gold jewellery industry can be segmented into:

Bridal gold wear

Daily & fashion gold wear

Bridal Gold Wear

Gold is deemed very important during the marriage ceremonies of Indians. Everyone from the oldest to the youngest wears excellent gold ornaments during the marriage ceremonies. The bride is always the point of attraction during a marriage ceremony and is embellished with ample amounts of gold ornaments. Gold has religious value in India because people believe that gold is a very auspicious precious metal and it provides wealth as well as success.

Since it is part of an Indian wedding, domestic jewellery consumption is formed by 50-60% share of bridal jewellery. Bridal jewellery is normally heavier by comparison to daily or fashion wear and ranges between 30-250 gms, depending upon the kind of jewellery. Moreover, they mostly come in 22-carat and 18-carat variants.

Daily and Fashion Wear

The jewellery for daily and fashion wear contributes 40-50% to domestic gold jewellery consumption. These are more lightweight jewellery, generally ranging from 5 to 30 gms in weight. Daily and fashion wear has strengthened in recent times, as customer demand for more affordable and wearable choices to suit their daily jewellery needs increases. Indeed, to make provisions for this demand from young customers, especially those who like to wear gold jewellery that can complement their Western style of attire, the focus of manufacturers is gradually moving toward the manufacture of lightweight ornaments. This has brought about the popularity of minimalist designs with simple shapes clean lines and, often, less gold. Young consumers crave modern designs that go well with Western-style clothing. More and more manufacturers and designers are making specific product lines for this market as they become more attuned to shifts in consumer demand.

Influence of Gold Prices on Demand for Jewellery

International gold prices have been on an increasing trend and hit multiyear highs, driven by rising inflation, geopolitical tensions, high liquidity available globally, etc. As domestic manufacturers and retailers of gold jewelry are majorly dependent upon imported gold, domestic gold prices generally trend in line with international gold prices and have doubled in the past decade.

It has been observed that when gold prices rise, demand for gold jewelry is more resilient compared to the investment demand. A large quantum of bridal jewelry is purchased in exchange for old jewelry, gold coins, or bars which the families have invested in over a period to accumulate gold for future weddings. Such practices provide a natural hedge to the consumer against gold prices and help sustain demand for bridal jewelry even if the price of gold goes up.

Gold Jewellery Wholesale Market in India

Overview of the Gold Jewellery Wholesale Market in India

In the gold jewellery sector, retailers generally purchase gold jewellery from wholesalers who manufacture the jewellery or outsource the manufacturing to workers. Most jewellers outsource the manufacturing of the majority of the plain gold jewellery inventory held by them while studded jewellery is procured through a mix of in-house manufacturing and outsourcing. With the growth of large retail chains, it has been noticed that, over the years, the share of the wholesale segment in the jewellery sourcing mix has risen considerably since the wholesalers give value to this by a variety of designs and continuous product innovations. This further permits the jewellery retailers to focus on the retail business.

Additionally, procuring jewellery from wholesalers is more prevalent in urban India, where there is a large-scale existence of jewellery retailers. In this model of wholesale business, the gold required for the manufacturing of jewellery is procured by the manufacturer itself. In contrast, jewellery manufacturing by job workers or karigars is a more common practice in rural India, where gold procurement is done by the retailer for manufacturing specific designs. In 2022, the wholesale segment was estimated to command a share of 60-65% of the total gold jewelry consumed in India, amounting to around 360-390 tonnes per annum.

Sub-Segments of the Gold Jewellery Wholesale Market in India

 By Segment: Organized and Unorganized Manufacturers

The wholesale jewellery industry in India has always been fragmented, with unorganized firms engrossing a large market share. The unorganized sector dominates the wholesale industry, and organized penetration in the wholesale industry in India is relatively lower at about 20-25 percent, down 10 percent from a decade ago. This growth in the organized wholesale segment has been impelled by several factors, such as expanding organized retailing, rising exports, and tightening in the regulatory environment.

Organized retailers prefer organized manufacturers since the order size of organized retailers is pretty high, which cannot be fulfilled by the small manufacturer. Further, the following are the advantages attached to sourcing from an organized manufacturer:

- Consistency and Quality: Chances of having standardized processes are more in organized wholesalers and due to such processes, product quality remains almost the same in their entire product line. Such consistency is essential, which demands a reliable supply of the products for its operation.

• Transparency and Availability of Capital: Organized wholesalers are far more transparent about the value of their products and the gold-sourcing value chain. Moreover, they have access to capital for inventory financing.

• Efficiency and Cost Savings: Since organized wholesalers often enjoy economies of scale, they usually manage to produce products with better efficiency and at cheaper costs that may then be translated into cost savings for products purchased by retailers.

• Customization and Flexibility: Organized wholesalers could alter their products in accordance with the demands of their clients. This flexibility can be important to retailers seeking custom-made solutions, particularly those who intend to develop a theme-based jewelry line.

• Regulatory Compliance: Organized wholesalers are more likely to follow through on regulatory compliance, which is critical for large working conglomerates and listed jewellers.

- Risk Management: Organized wholesalers will have risk management protocols in place, and it could help tide over the possible disruptions in the supply chains.

 Outlook of the Gold Jewellery Wholesale Market in India

 Outlook of the Overall Gold Jewellery Wholesale Market in India

The domestic wholesale gold jewelry market is likely to grow from 378 tons (out of the total demand of 600 tons of gold jewelry) in 2022 to 402 tons by 2025 and 475 tons by 2030, at a CAGR of 2.5%. If estimated in value terms, the size of the industry would be ₹2,340 billion in 2030 from ₹1,713 billion in 2022.

Outlook on Organized and Unorganised Segments

The wholesale sector in jewelry in India has been perpetually fragmented and dominated by unorganized firms. The unorganized sector occupies a dominant position in the wholesale industry, while organized wholesale penetration in India is relatively very low compared to the developed nations. In the Indian wholesale jewellery industry, the unorganized sector enjoys a lion's share of about 85%+.

The organized segment is likely to grow at a CAGR of 3.8% during CY22-CY30, while the unorganized segment is likely to grow at a CAGR of 3.3% during the same period.

Top Player in the Industry

• Increasing Dominance of Organized Players:

The trend is clearly that of consolidation, and the market share of top players has risen consistently over the years.

The indication is that it's a shift from fragmented, unorganized players to bigger, more organized businesses.

• Growth of Organized Market:

The total organized market increased considerably from 23% in FY19 to 37% in FY24. This points to growing consumer preference toward branded and organized jewelry.

This could be driven by factors like rising trust in organized players, improvement in quality of products, and improvement in customer experience.

• Volatility in market share:

Though the market of organized is growing as a whole, individual players have been seeing different fortunes. While some players have increased their market share significantly, others have either seen it decline or stagnate.

This intense competition indicates a condition of high competitiveness in the organized segment.

• Shrinking unorganized market:

The share of the unorganized market has been constantly falling, thus pointing to a gradual shift towards organized players.

This trend may be due to changing consumer behavior, increasing government regulations, and the competitive pressures that emerge from organized players.

Implications:

1. The jewelry industry is getting increasingly competitive with a growing dominance of the organized sector.

2. The consumers are getting more discerning and prefer branded organized jewelry.

3. Players with strong brands, efficient operations, and effective marketing strategies are likely to gain market share.

4. The challenge for the unorganized sector has already been significant and is further likely to drop in the coming years.

Store mix of Top players with a network of 2,000 stores

• Titan's Dominance: Titan commands a substantial market share of 45%, signifying its strong brand presence and extensive retail network.

• Oligopolistic Structure: The top 5 players (Titan, Kalyan, Malabar, Senco, and Joyalukkas) collectively hold approximately 68% of the market, indicating a highly concentrated industry.

• Fragmented Tail: The remaining market share is divided among numerous smaller players, suggesting a long tail of competitors.

Implications:

• High Barriers to Entry: The dominance of a few large players suggests significant barriers to entry for new competitors, making it challenging for smaller players to gain a foothold.

• Scale Advantages: Large players benefit from economies of scale, allowing them to offer competitive prices and invest in branding and distribution.

• Focus on Differentiation: To compete effectively, smaller players must focus on niche segments or offer unique value propositions to carve out a market share.

• Retail Expansion: The focus on building a strong retail network is crucial for success in the industry, as evidenced by the large store counts of major players.

Overall, the jewelry industry exhibits a strong oligopolistic structure with Titan as the undisputed leader. Smaller players face challenges in competing with established giants but can find opportunities in niche segments or by offering differentiated products and service

Regulatory Process and Framework for the Gems & Jewellery Industry in India

FDI Norms

The gems & jewellery industry is the second-largest Foreign Exchange Earner in the Indian economy. Presently, 100% Foreign Direct Investment is allowed in the sector under the automatic route. This sector has become a focus area for promoting exports. The government has taken various initiatives for investment promotion and technology upgradation. This growth prospect is driving the country towards a 'Brand India' in the global market. FDI has been one of the principal drivers in uplifting the jewellery sector and contributing towards the overall development of the economy. FDI equity inflow in the gem & jewellery sector during FY2016 – H1FY24 was USD 568 million.

Goods & Services Tax (GST)

Before the regime of GST, gold was used to attract a 2% tax that consisted of a service tax and a value-added tax or VAT of 1% each. With GST, the tax rate levied on gold sales rose from 2% to 3%. This had a critical impact on the jewelry industry. An additional 5% GST is applicable on the making charges of gold jewelry in India. GST of 1.5% is levied on cut and polished diamonds.

Introduced GST benefitted inter-state business transactions as various states operated different tax structures before the GST that was subsumed into a single tax rate post-GST rollout. It has also made the purchase of bullion easier. More importantly, the rollout of GST has brought in transparency and accountability, more so in the organized sector.

Central Government's Gold Monetization Scheme

GMS, Gold Monetization Scheme, is a scheme launched by the Central Government of India in November 2015 to make productive use of gold lying idle at home or stored by households and institutions of the country in their bank lockers. Other motives behind this scheme were to reduce the country's dependency on gold imports. It allows individuals, institutions, corporations, and temple trusts to deposit their gold with RBI-designated banks for a short-, medium-, and long-term period. This scheme shall enable them to earn interest at an administered rate of interest decided by the Central Government.

Revamped Gold Metal Loan:

(i) Repayment of GML in lots of 1 kg

(ii) Repayment of the gold loan availed under GML with locally sourced IGDS standard bullion

GML to be offered to all jewellers having a valid working capital credit limit

Training Efforts of Government Agencies through the Gems and Jewellery Skill Council of India

The Gems and Jewellery Skill Council of India is a council body under the close guidance of NSDC that came into existence in 2012 and is presently functioning under the Ministry of Skill Development & Entrepreneurship. GJSCI is an institution that encourages skill development among the workforce in the Indian gems & jewellery industry. They provide training for the processing of diamonds, coloured gemstones, the manufacturing of jewelry, and other areas like wholesale, retail, and exports. They also undertake initiatives to provide the manufacturing setups with the latest technology and other resources for upgradation.

Hallmarking of Jewellery in India

The Bureau of Indian Standards introduced a hallmarking scheme for jewellery in India under the BIS Act, Rules, and Regulations in 2000, and it was made mandatory with effect from June 2021. From July 1, 2021, all gold jewellery products shall mandatorily be hallmarked with HUID only. This hallmark consisted of three marks viz., BIS logo, purity of the article, and six-digit alphanumeric HUID. Each article is hallmarked, and a unique HUID number is identifiable to it.

Conclusion

In this detailed overview of the Indian jewellery industry, we look at the complex value chain from production and design to retail and wholesale relations. The sector is deeply inlaid within the cultural and traditional fabric of India and has shown magnificent resilience and adaptability amidst evolving consumer preferences and regulatory landscapes.

Bridal jewellery is the core area of business for the industry since the cultural inherent value of gold during weddings and festivals is so high. Gold prices, which fluctuate now and then, have failed to dampen demand for bridal jewelry which is further supported by trading in old jewelry and long-term savings in gold.

The structure of the wholesale market is reconfiguring itself, slowly moving from an unorganized to an organized player. This shift is developing with the increase of organized retail, exports, and robust regulatory measures that continually reinforce transparency and efficiency.

Besides, the regulatory framework, correctly stipulated by FDI norms, implementation of GST, and hallmarking mandates, is driving a more formal and disciplined industry. Initiatives on the part of the government on the Gold Monetization Scheme and the various skills-based training initiatives of the Gems and Jewellery Skill Council of India are pulling in growth and modernization.

This will, in all probability, characterize the Indian jewellery sector's trajectory as tradition and modernity, abstracted from global market dynamics in the driver's seat. The organized players' consolidation itself, with more consumer preference now coming in for branded jewellery, has only added the leads further to set a tone for a better and vibrant market landscape.