Balancing act – a discussion with Vipul Shah

Avi Krawitz

India’s Gem and Jewellery Export Promotion Council (GJEPC) tends to set an ambitious ‎agenda for itself. With around 5,300 members across India, the industry body is tasked ‎with lobbying government, trade and consumers to ensure growth for the gems and ‎jewelry sector.  ‎

The task used to be easier. Faced with a widening current account deficit in a challenging ‎global and domestic economy, the government has been forced to introduce measures ‎that have not always been so friendly to the diamond and jewelry sectors or kind to ‎foreign companies hoping to operate in that space. Higher imports on gold, silver and ‎diamonds have aimed to curb imports and local consumption as a means to reduce the ‎deficit.‎

That tends to put the council in an awkward position as members balance their ‎willingness to contribute as proud Indians and their desire to grow the industry.‎

Vipul Shah, the recently elected GJEPC chairman, is all too aware of that dichotomy. In ‎an exclusive interview with Rapaport News conducted on the eve of the February 28 ‎budget announcement, Shah noted that the council’s lobby is ongoing. ‎

The eagerly watched budget turned out to be bittersweet for the trade. While relatively ‎well received by the country – Moody’s called it positive and optimistic, but challenging to ‎achieve – very few of the council’s recommendations were included (see editorial, ‎‎“India’s gem & jewelry lobby”, published on February 8, 2013). ‎

Biggest Challenge

Finance Minister Palaniappan Chidambaram avoided the additional gold import duty ‎hikes that many expected. He already raised the duty from 4 percent to 6 percent in ‎January. ‎

However, he also did not adopt most of the proactive recommendations that the council ‎requested to help grow the industry. Most important among these were implementing a ‎more investor-friendly tax regime for rough mining companies to create a local rough ‎trading hub, so that India’s enormous manufacturing sector can buy rough directly from ‎the source in its own backyard.   ‎

Shah, who is also managing director of Asian Star, a diamond and jewelry manufacturing ‎company, listed the local industry’s desire to establish a rough trading hub in Mumbai as a ‎priority for the council in fiscal 2013-14.‎

‎“Right now, our biggest challenge is the sourcing of rough diamonds,” he said. “Currently, ‎the goods are coming to us via Belgium, Dubai or Israel so we could cut down on ‎significant transaction costs if the rough was sold directly here.”‎

The council has recommended the establishment of special notified zones for the import ‎and trading of rough diamonds. These would enable mining companies to set up office in ‎the zone and pay taxes only on the goods they sell, rather than on the full imported ‎consignment that may include goods that remain unsold.‎

These things take time – especially in India. In a post-budget statement, Shah lauded the ‎government for accepting a task group report to delve into the matter. He stressed that ‎talks are ongoing to further its goals and the council “is eagerly waiting for the reform ‎announcement by the foreign trade policy, which may be supportive of the gems and ‎jewelry sector.”‎

Polished window

Equally pressing, and included in the reform proposals, is maintaining some equilibrium in ‎India’s polished diamond trade. Here too, the government failed to accept the council’s ‎recommendations to allow a duty-free window on imports amounting to 15 percent of the ‎previous year’s polished exports. The 2 percent duty introduced in January 2012 ‎significantly reduced India’s polished imports, which Shah insists enabled the industry to ‎make a positive contribution to the country’s economy.‎

‎“As it is the government is struggling with the current account deficit, so as a responsible ‎council we came forward and asked them to impose the duty on polished diamonds,” he ‎explained.‎

In hindsight, he added, the numbers speak for themselves. India’s polished imports ‎ballooned to $20 billion in calendar 2011, closing in on the value of its polished exports. ‎The duty, and a weak market, led polished imports to decline 72 percent to $5.63 billion in ‎‎2012, while polished exports fell 37 percent to $17.03 billion. India’s net polished exports – ‎exports less imports indicating the net amount of polished goods leaving the country – ‎grew 62 percent to a healthier $11.4 billion (see graph below).‎

Again, the council’s lobby is a work in progress and Shah explains that the 15 percent ‎leeway will help companies avoid being taxed on goods sent out on consignment that are ‎reimported unsold. Similarly, in the gold space, Shah stresses that the council walks a ‎fine line between understanding the government’s current account constraints and the ‎jewelry industry’s needs. Instead of further taxes, the council has recommended curbing ‎demand for gold coins and medallions, which Shah estimates account for about 35 ‎percent of the country’s gold imports. Stopping those imports would not affect the jewelry ‎sector, he notes.  ‎

Focus on growth

Despite the constraints, Shah, who was elected GJEPC chairman in October 2012, is ‎optimistic about the market with the current final quarter of the fiscal year that ends on ‎March 31, being the strongest so far. “We are seeing good orders both in SEEPZ ‎–‎specialized economic zone for jewelry and also for loose stones,” he reported. “Overall, it ‎looks more promising and we expect about 15 percent growth in gems and jewelry ‎exports in the coming fiscal year.”  ‎

While such growth is expected to be spurred by the U.S., Far East and Middle East ‎markets, the council is naturally also focused on capitalizing on India’s continued growth ‎in diamond and jewelry consumption. Shah insists that India’s best years are not behind it ‎and explains that the growth opportunity lies in the tier-2 cities.   ‎

‎“The Indian consumer has become more empowered and demanding and is increasingly ‎quality and standard conscious,” he said. “There is an appetite for much more luxury and ‎branded products than ever before.”‎

The council has engaged in an effort to directly target consumers with the launch of a ‎retail (business-to-consumer) jewelry exhibition in New Delhi in April, adding to its more ‎traditional business-to-business events. Based on its success, the idea may spread to ‎other parts of the country. The council is also taking its India International Jewelry Week ‎‎(IIJW), which was launched in Mumbai three years ago, to international markets, starting ‎with Dubai later this year.‎

Also on the international front, the council is intent on enhancing its buyer-seller meet ‎events with groups from China, Russia, Australia, the U.S. among others and showcasing ‎India at the major trade fairs such as in Hong Kong, Las Vegas, and Vicenza.‎

The council’s bigger test in the consumer space may be in its promotional activities as ‎Shah explains that a generic marketing campaign is in the works.With the absence of ‎consistent promotion activity by any organization, GJEPC plans to take the initiative to ‎promote diamonds in the consumer space, to boost demand for diamonds and diamond ‎jewelry in India,” he stressed. “The timeline and modalities are being worked out and we ‎expect to commence this activity very soon.”‎

Responsible to whom?

Time will tell if the council can succeed in generic marketing where other efforts have ‎failed. Many in the Indian diamond and jewelry market admit they could do with a boost ‎and see the council as a key enabler for the local trade operating in an increasingly ‎regulated environment.‎

‎“It’s a concern because while [these restrictions] don’t affect the export business, they are ‎impacting the domestic market,” Shah said. “We are talking to government about it but ‎they have their own issues being the current account.”‎

It’s an ongoing and necessary discussion. With its own budget and ambitious program in ‎place to enhance the local industry, Shah and the GJEPC remain frustrated that the ‎government could have made its task that much easier in the coming fiscal year. ‎Meanwhile, since the treasury’s budget once again failed to deliver for the diamond and ‎jewelry sector, the council is forced to continue to balance their responsibility to state and ‎industry.

Source Rapaport