Diwali is considered the festival of light and joy, but this
Diwali, many industries in India are facing a tough time due to the
aftereffects of demonetization and the challenges that have accompanied the new
goods and services tax (GST). The gem and jewelry industry is no exception.
Factories in Surat are finding it difficult to clear their
inventories, and the lull accompanying the festive season hasn’t helped. Most
of the small and medium-sized diamond manufacturers drew their shutters early
this year. Usually, they take a break of about 30 days for Diwali, during which
laborers travel to their hometowns to celebrate the festival. This year,
though, the factories shut down on October 15, and most of them will remain
closed for 45 days.
Meanwhile, the repercussions of GST have hit the small and
medium-sized manufacturers the hardest. Among other things, the new system
entails a tax on regional transfers of goods, even if it’s to another branch of
the same company. As such, companies that have operations in both Surat and
Mumbai must pay for every transfer between the two locations — a cost they find
harder to absorb than do their larger counterparts. In Surat, many small
manufacturers have stopped processing diamonds, fearing the effect that the 3%
GST payment and 0.25% tax on rough diamonds will have on their liquidity
according to a Times of India report in October.
“From a consumer point of view, GST at 3% has been well
accepted,” Vijay Jain, CEO of leading diamond jewelry brand ORRA, told Rapaport
Magazine in an interview. “From a retail point of view, there have been a few
challenges, including the subject of interstate transfer of goods, which was
earlier free of charge.”
That said, GST is likely to benefit the organized trade,
Jain continued — particularly because of the accountability it imposes on the
unorganized sector. Since all transactions must now be reported, he said, “it
will put the organized players on the same level playing field as the
unorganized players. So we believe that GST will bring about a structural
change in the industry and be extremely positive for the organized players. The
Diwali season will be able to prove this further.”
Meanwhile, India has been witnessing an upsurge in demand
for branded jewelry for almost half a decade now. Credit for this goes to the
Gitanjali Group, which revolutionized the country’s jewelry retail market.
In 2008, branded jewelry accounted for only 8% of the
industry’s total market share, while today, that number has risen to 23%,
according to Nikita Ratanshi, director and co-founder of Birla Jewels. Thanks
to marketing efforts, she continued, “consumer awareness about the offerings,
the quality and other parameters associated with jewelry has increased.
Nowadays, a lot of brands have e-commerce websites or sell online, and this is
gradually changing the traditional methods of buying jewelry. Every consumer is
aware of the pieces they prefer to buy, due to digital technology; the major
focus is quality over quantity now.”
Considering the challenges that retail chain stores face,
Ratanshi noted the importance of “choosing the right franchise partner” to sell
one’s brand. “There should be a standardized measure for the franchise owners.
A franchise owner should not dilute your brand, but rather sustain and bolster
your brand in the markets. Today, each brand is facing immense competition; to
be a good market player is a big challenge in terms of marketing campaigns,
advertising, sales and special festive offers.”
Article from the Rapaport Magazine - November 2017. To subscribe click here.