With the price of gold hovering at an all-time high levels, Rajesh Mehta, chairman of Bangalore-based Rajesh Exports, the country's largest manufacturer and exporter of jewellery, speaks to Archana M Prasanna about its effect on sales in the upcoming festive season and issues affecting the gems and jewellery industry. Excerpts from the interview:
With gold being at an all-time high, how do you see this affecting sales of the festive season?
The price of gold rising to such levels is not a welcome sign. It is a dampener on the upcoming festive season. The gems and jewelley industry employs nearly 4-5 million people who are going to feel the heat. The government should take a note of this and provide some relief. We are expecting sales to drop by 20-30 percent this year as compared to the already low sales of last year.
How do you see the price of gold from now on? Will there be a correction?
The price of gold will surely come down. There is not much enthusiasm at the ground level. Right now the price is being driven by speculative activities. But sense will prevail. In the next three to four months much needed stability will return.
Do you see buyers looking at diamond as an alternative to gold in the present situation?
I don't think so. Gold is a highly liquid commodity and more viable than diamonds. Moreover, diamonds are not as good an investment option as gold. There is now a change in the mindset of people with regard to diamonds. In the last 5-7 years it has been seen that there is a growth in sales of branded diamonds due to growth in the retail sector. There are signs that it could grow stronger from here, but in the near future, diamond would remain a good sentimental buy and something to adorn. When it comes to investment, Indians would always go for gold.
What has your strategy been to counter the slump in the economy?
We, at Rajesh Exports have managed to counter the crisis by taking a conservative approach. Once the recession started, we did not push for high-profit businesses and opted for low-risk, low-profit decisions. For instance, we were promoting sales of our branded diamond jewelley in the US and Europe but with demand having reduced in those countries we have decided not to pursue that aggressively. We are sticking to our core business of supplying to wholesalers and that too for cash. We have been able to maintain our revenues, but the profitability has come down due to the cautious approach taken by us.
Have you had to re-think or postpone your expansion plans owing to the ongoing financial crisis?
We entered into retail business in 2007 with two brands Shubh- for gold jewelley and Laabh - for diamond jewelley. We have now started promoting Shubh, our gold jewellery brand owing to greater demand and decided to convert the Laabh stores into Shubh to increase its presence. However, once the markets show promise in a few months we will re-launch the Laabh brand differently as exclusive upmarket jewellery store. We are looking at setting up 450-500 Shubh stores and 150-200 Laabh stores in the next five years. We have no other expansion plans in the pipeline for this year.
Whare are your views on the new Foreign Trade Policy (FTP) with respect to the gems and jewellery industry?
I would give the FTP a rating of 6 out of 10. The policy has definitely taken initiatives to ensure exports hold on their own in the current situation and grow but some expectations were not fulfiled. The government extended income tax benefits for Export Oriented Units (EOUs) and SEZ’s by one additional year till March 2011 but this is a very short duration. Short extensions make planning a difficult task. Even the 2 per cent interest subvention scheme has just been given a six month extension which sends wrong signals to the export community. The plan to set up diamond bourses across various parts of the country is a welcome one but one has to wait and watch as to when it may be implemented. The government has talked about availing dollar finance easily for exporters even in the past, but there has been no follow-up in this regard.
Have gems and jewellery associations taken up the issue of lack of dollar finance with the government?
We have sent many representations to the commerce ministry but we have not got any desired results. The commerce ministry re-directs us to the revenue ministry and likewise. At a time when countries like Malaysia and Singapore who are competitors can avail dollar finance easily, we lose our edge in the international scenario. We should not be bounced between various departments of the government. Our request is simple; treat us like a foreigner in export trade matters since we are not competing locally. In every other aspect we will abide by the law of the land. This is essential for exports to grow.
