Jewellery sector to get a major boost from FDI in retail

The Rs 250,000-crore domestic jewellery industry is likely to get a major boost through the government’s decision for foreign director investment (FDI) in retail.

The government’s decision to open with 51 per cent in multi-brand and 100 per cent in single brand retail market would allow global players to enter Indian markets by setting up manufacturing units in India. It will also help overseas majors to acquire regional brands and promote them to the national level for participation with local players.

“It is a good decision which will help Indian jewellery industry to get innovative technology which is widely accepted elsewhere. Global jewellery peers will also bring technical know-how which will help the industry to grow rapidly,” said Sanjay Kothari, vice-chairman of the Gems and Jewellery Export Promotion Council (GJEPC).

Not only that, consumers will also get benefit if rare and the most complicated design jewellery items are brought to India. Apart from widening consumers’ choice, the jewellery items would be available at least 10 per cent cheaper for Indian buyers.

“Bringing jewellery items from abroad attracts 10 per cent import duty on Saturday. Assuming the cost of production matches in India with abroad, this duty component can easily be saved,” said Kothari.

Importantly, overseas players must invest in manufacturing and not only in retail.

“Opening up FDI in retail will accelerate the growth of branded and organised players like us. We can have strategic partners and inflow of fund to improve the ‘retailonomics’ of the country. For international retailers it is an opportunity to be a part of Indian consumption story as well as bring in revolution in the retail experience with their expertise. Beside window for luxury players to partner with Indian brands, we expect chains like Wallmart, Carrefour, M&S also to spread their presence and formats,” said Mehul Choksi , CMD of Gitanjali Gems.

Branded jewellery sector is likely to get the biggest pie of overall foreign direct investment. With the industry is expected to witness a double digit growth the entry of foreign players would escalate the growth further.

Organised retailers like Gitanjali Gems, PC Jewellers, Tanishq and Tribhovandas Bhimji Zaveri (TBZ), with the growing focus of Tier-II and Tier-III cities, are set to grab greater pie of the rural economic growth arisen especially from rapidly expanding income from land bank and farm sector.

Currently, branded jewellery sales contribute six per cent of gold and diamond jewellery sales which have witnessed over 50 per cent increase from the level of 4-4.5 per cent two years ago. Two years hence, however, the share of organised sector jewellers is likely to rise to at least 12-14 per cent. Rural markets contribute nearly 40 per cent of branded jewellery sales currently which is estimated to rise to 60 per cent in two years.

“Expanding reach of service sector especially in Tier-II and III cities is set to drive the demand of branded jewellery where disposable income remains very high. Employees in this sector frequently change work place lacking thereby the traditional jewellers of their choice. In absence of a reliable traditional jewellery supplier, they move to organised retail to buy a branded jewellery where they get trust and guarantee of purity alongwith a pride of renowned brand. The entry of foreign retailers will expand availability of jewellery items at competitive price,” said Bachhraj Bamalwa, chairman of All India Gems & Jewellery Trade Federation (GJF).

According to a CII study, opening up of FDI in retail can increase organised retail market size to $260 billion by 2020. This would result in an aggregate increase in income of $35-45 billion per year for all producers combined; 3-4 million new direct jobs and around 4-6 million new indirect jobs in the logistics sector, contract labour in the distribution and repackaging centers, housekeeping and security staff in the stores. The government also stands to gain by this move and can be expected to receive an additional income of $25-30 billion by way of increased tax collection and reduction of tax slippages.