Funding for jewellers still paralysed due to side-effects of note-ban, GST

Bankruptcies commence, factories stay shut longer

Pankaj Jagawat, managing director, Shanti Gold said banks did not see the difference between a diamond company and a gold one, which was one of the major concerns. "They are two entirely different ball-games. Gold is backed by international standards, easy to test and is accepted as currency while diamonds are much harder to grade. They need laboratories to tell the difference between synthetic and natural stones, and are much easier to mix in with a batch of regular stones."

The possibility of the slowdown affecting more players is greater if the industry doesn't get access to easier finance in the next six to eight months. "Banks should re-look at their lending practices as a shotgun approach does more harm than good," said Mehta. 

Presently, India exports some $40 billion of gems and jewellry, and accounts for 7 per cent of the nation's GDP. Mehta cautioned that the threat of the slowdown crossing over into the export market was likely if the financing issues persisted.

For larger players, the picture is rosier. For net profits reported in the first nine months, ended September, as compared to the last year, Rajesh Exports reported a 17 per cent increase, Titan Industries reported a 34.5 per cent increase, and Tribhovandas Bhimji Zaveri (TBZ) saw an increase of 53 per cent. 

Colin Shah, GJEPC vice-chairman said despite the liquidity crunch, organised players had a strong footing for a variety of reasons, which include their lines of credit, and relationship with banks. 

In the big picture, Orra Diamonds CEO Vijay Jain said, historically, long-term credit between 90 and 120 days was common. Now, because of sectoral headwinds the entire supply chain, which includes diamond cutting and polishing, manufacturing, wholesale and retail, is affected with  both the quantum of credit and duration reducing by around a third. 

The pros, as Jain said, are a more organised industry. "Effectively, GST and demonetisation has also brought in a level playing field between the formal and informal sectors in the trade, which had enjoyed a tax arbitrage," he said.  So, while the absence of capital may not mean that there will be a widespread move for companies to file bankruptcy, there will be more temporary shuttering of shops, fewer employees at retail locations and factories, and longer non-manufacturing days. And also bad news for customers in the form of reduced discounts.