 "Gold jewellery manufacturing industry to undergo structural changes")
All India jewelers have now decided to call of their over 40 day strike. As jewelers returns to normalcy after a prolonged strike of over 40 days excise duty on jewellery is a certainty. However that will change the way industry operate especially manufacturing activities could see structural changes along with consolidation in the industry.
First impact will be on unaccounted trade as excise levy will require jewelers to keep records of purchase of gold. Compliance cost for manufacturing would go up which will lead to structural changes and even consolidation.
Vijay Jain, CEO of Orra (a Jewellry manufacturer and retail chain) said: “Jewellers were losing business at peak demand season and they also had to consider pressure on workers, larigars and hence withdrawn strike. But another side of the business is that the excise duty will lead to jewellery manufacturing industry passing through a structural changes and will also lead to consolidation.”
Gudi Padwa and Ugadi were last week while Vishu and Tamil New Year on 14th April, and Akshaya Tritiya on 9th May and these are big business opportunities for jewelers which they were not ready to go away.
Industry is at present widely divided among small, medium and large jewelers and they have to maintain records, which will increase compliance cost. Manufacturers would have to scale up their businesses or cut cost to protect margins. This could lead to structural changes.
An industry official who has operations in Suraj, a city in Gujarat known India’s diamond processing hub, said: “In Surat, under a single roof workers are seated in a row, often up to 20 rows in the one room, with each row belonging to a different diamond processing company.This essentially built economies of scale due to the cross coordination of work; also with this structure it is difficult for an inspection officer to conduct a check. We foresee that gold jewellery fabrication too may shift into a similar manufacturing set-up as it becomes beneficial to have more fabricators with less than rupees six crores turnover in the one space.”
A bullion trade association’s top official said many small jewelers who also work with unaccounted gold would prefer to exit jewellery manufacturing by selling their business to a bigger company and start trading which has no excise duty. These would lead to consolidation.
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With compliance cost rising, retail expansion on rental places could also get affected, fear a retail chain official. Most industry players Business Standard spoke to said that margins are set to remain under pressure in this wafer thin margin business.
Good part, which an official of Indian Bullion and Jewellers Association said: ”Business, would come on books, rather than remaining unaccounted and help check smuggling,” which was estimated at 142 tons in 2015 by GFMS. He said organized business will grow while unorganized and especially thriving on business without maintaining records would face a tough time.
Good part, which an official of Indian Bullion and Jewellers Association said: ”Business, would come on books, rather than remaining unaccounted and help check smuggling,” which was estimated at 142 tons in 2015 by GFMS. He said organized business will grow while unorganized and especially thriving on business without maintaining records would face a tough time.
Jewellery selling is hardly a standalone business for many smaller jewelers as several of them are also acting as money lenders providing finances against jewellery as collateral. if they also sell jewellery, they would find both businesses difficult to run with excise duty being implemented.