Gems and jewellery units to miss the sparkle again: Crisil SME Tracker

Small and medium enterprises (SMEs) in the gems and jewellery sector appear set to take a blow from the Covid-19 pandemic for the second year on the trot, in the current fiscal year (FY22). 

The first quarter bore the impact of lockdowns imposed by states to contain the second wave of infections. SMEs, which make up two-thirds of the sector by value, were hit hard — especially those focussed on domestic demand.

As a result, although these units will likely grow 15-20 per cent year-on-year (YoY) in value terms this fiscal, it will be on a much lower base.

Domestic demand, which comprised about 56 per cent of the pie in value terms in FY21, is projected to pick up in the second half of this fiscal, with the onset of the festive season. But with gold prices remaining high — after reaching a historical high of Rs 48,100 per 10 gram (a YoY rise of 30 per cent) in FY21, the average domestic gold price is expected to decline just 2-5 per cent YoY this fiscal — further rise in demand will be restricted.

Hence, domestic market-focussed SME clusters will see only optical growth. In volume terms, domestic demand is expected to be significantly lower vis-à-vis pre-pandemic levels, owing to store closures, high product prices, and limited discretionary spending during the first quarter. 

Even export prospects are none too bright. SMEs in Surat, India’s largest diamond cluster, which was largely unaffected by lockdown 2.0, are expected to perform better over last year’s low base amid improvement in global demand, as the impact of the pandemic wanes. However, they are unlikely to reach pre-pandemic levels in value terms.