 "India's gems and jewellery exports decline on a global economic slowdown")
Britain’s exit from the European Union is likely to affect India’s gems and jewellery exports badly due to depreciation in the Pound (GBP) against global major currencies including the Indian rupee.
Following referendum in its favour, the GBP depreciated by 7.12 per cent against the Indian rupee to close amid high volatility at 92.98 on Friday after opening at an even lower level at 91.10.
While one of the world’s largest rough diamond suppliers, De Beers, supplies most of the raw material from Africa, part of its business continues to have a direct link with the GBP. Interestingly, the United Kingdom contributes less than 10 per cent of India’s $40 billion of annual gems and jewellery exports.
“Import of rough diamonds would get impacted. Since the bills for import of rough diamond are made in dollar terms, the GBP’s depreciation would not have any direct impact on India’s import in the short term. But, import of rough diamond would reduce in the long term,” said Sanjay Kothari, Director, Kunal Diamonds, a city-based diamond dealer.
Diamond and jewellery business is currency-sensitive. With every change in currency movement, business gets impacted. India imported $14.05 billion worth of rough diamond in the financial year $16.76 billion in the previous year.
“A depreciating GBP would reduce the purchasing power of Britons, resulting into a proportionate decline in the purchase of gems and jewellery, which will hurt India's exports. Import of rough diamond would reduce equivalent to the decline in gems and jewellery exports,” said Vipul Shah, Managing Director and Chief Executive Officer, Asian Star Company Ltd, a 100 per cent exporter of valuable ornaments.
Praveen Shankar Pandya, chairman, Gems and Jewellery Export Promotion Council (GJEPC), however, feels that the impact of Brexit would not be felt immediately. But, in the long run, rupee’s devaluation against the dollar would definitely hit both, import of rough diamond and export of finished ornaments, he added.
Even a falling rupee will make dollar-denominated diamond imports costlier. The rupee slipped to a four-month low to close 0.71 or 1.06 per cent lower at 67.96 against the dollar on Friday.
“The current fall in the GBP is a knee-jerk reaction. We need to wait and see for a couple of days for the currency to stabilise. Then its actual impact would be felt,” said Shreyas Doshi, Chairman, Shrenuj & Co.
The Bank of England said it would take all necessary steps to secure monetary and financial stability after Britain voted to leave the European Union. "The Bank of England is monitoring developments closely," it said in a statement.
