Of late many Indian diamond as well as jewellery companies have been hit hard due to the slowdown in the international consuming markets. On the one hand, there is insufficient demand, both from overseas markets as well as in the domestic market, as compared to earlier times; and on the other, payments from clients have been delayed leading to numerous problems for the Indian exporters. And rightly so, the industry is rather apprehensive regarding the oncoming Christmas season… what with the Jewellery Shows in US / HongKong this year turning out into a damp squib.
It is estimated that about 25 diamond firms, mostly small companies, have shut shop this year. But, the problem is much more than what meets the eye. Bigger and established companies, too, are going through tumultuous times due to various reasons. Some observers think that the diamond market has been adversely affected since demonetization, with the strong dollar making the situation much more difficult.
Now, with the news of two bankruptcies doing the rounds, the industry’s sentiments will further go down. The diamond cutters, polishers and small firms that trade in rough diamonds in Mumbai and Surat, who have been working with wafer-thin profits in recent months, will lose confidence in the business altogether.
According to analysts, for the last one year, purchasing rough diamonds has become more expensive due to a strong dollar and demonetization. As the industry depends on bankers for financing rough purchases, the lending banks have also been safeguarding their monies with stricter norms. This has led to a no-win situation in the industry, so much so that several businesses are going belly-up.
For the record, the Indian gems and jewellery industry is a foreign exchange earner, generates large scale employment opportunities and contributes about 6% of India’s GDP, boosting the economy of the country. So, it is valid for the industry to ask the government for sops like waiving of GST on rough diamonds, which are the raw material for exports. Industry members are of the opinion that a helping hand from the government will go a long way in the trade facing the various challenges from fluctuations in terms of demand, currency etc globally.
Finance is one of the key issues of concern to the diamond industry, the diamond manufacturers bear the brunt as they pay advance to the mining companies to procured rough and gave retailers credit of 90 days and more, weakening their financial strength. In addition, the cost of financing is exorbitant as well, which the MSME sector, which is the backbone of the diamond industry, are not able to bear.
In recent months, the Indian G&J industry has been making efforts to get organised and getting digitalised. Even the Micro, Small and Medium Enterprises (MSMEs) are becoming compliant and moving towards a cashless system of transactions within the diamond industry.
Analysts are however of the view that if the industry is strong, the banks will be strong as the interests of both were intertwined. And as the diamond industry is a complicated sector, solutions should be tailored. While lending banks can do their due diligence carefully by understanding the eco-system of the diamond industry, the diamond trade organisations should also provide information to banks about the industry and the companies in it.
It is reported that some companies divert the loan monies from the banks to other businesses like real estate etc, which obviously affects their core business adversely. So, if financing banks, besides asking for collateral, make sure that they are the first charge holders over all the clients’ assets, book debt receipts, cash flow both present and future, stock at various company locations and receivables to safeguard their monies, it is totally legitimate.
Now, the onus is squarely on some of the gem & jewellery companies in India, who have to clean up their act and change the way they are doing their businesses. If not, the whole industry which was built on trust, transparency and integrity will suffer…