These are testing times- the economy is in free fall in developed countries across the globe, with emerging markets too being considerably singed by an unprecedented global recession. As the gloom deepens and the recession severely stymies the growth of markets internationally, the International Monetary Fund has bluntly warned that the world faces the prospect of a simultaneous recession in the United States, Europe and Japan for the first time in 60 years. With oil prices plumbing new lows, auto majors in the United States (General Motors may file for bankruptcy unless it receives a federal bailout) recording steep falls in revenue and Britain, along with Europe, facing its worst unemployment rates in over a decade, the world's developed economies appear to be at the edge of a precipice.

But despite facing the bleak prospect of slowing economies, the world's emerging markets, including India, are not on skid row. The Indian jewelry industry, which is dependent on the United States as the world's largest jewellery market, has witnessed very poor growth in certain spheres such as the diamond segment, but seen a spurt in consumer spending in the gold segment, in particular around Divali '08. While the Indian jeweller is wary that the contagion of recession may affect the domestic market, he is tracking the global recession carefully and attempting to secure his own market.

Chill in gold market

Despite the domestic market's proverbial love for the yellow metal, gold prices fluctuated wildly in the first half of the year, sending a chill of insecurity through the consumer. The volatility of gold markets in the first two quarters of 2008 frightened the consumer who forswore any investment in the yellow metal. Prices reached an acme of Rs14,300 per 10 gms on July 15, '08 “but then,” says Dharmesh Sodah, Director, World Gold Council, “the prices corrected themselves and business became buoyant.” According to Sodah, the first six months of 2008 witnessed a decline of 47% in the demand for gold “but there has been good recovery in the third and fourth quarters of the year respectively.” There was a phenomenal upsurge in the demand for gold around Divali and Dhanteras “in fact, this has been the best Divali we have had in the last seven years,” reveals Sodah emphatically.

According to the World Gold Council, business in gold escalated in July and August, but was not too positive in September and early October. However, the approaching festive season ignited the market which exploded in an outburst of frenzied buying. The Council expects that the consumption of gold in the country will cross 700 tonnes in 2008. Sodah also revealed that while the traditional gold markets of Mumbai, Delhi, Ahmedabad and Kolkata did not fare too well in this buoyant market, Tier II cities and small towns like Pune, Nagpur, Jalgaon and Chandigarh grew exponentially. However, he admits that the global recession has touched the domestic market too, with FII's withdrawing their funds, gold imports becoming more expensive and gold exports getting depressed.

A close scrutiny of the market reveals that gold bullion (coins and biscuits) has out-performed gold jewellery and diamonds, chiefly due to its attractiveness as an investment option. But in a market which is fraying at the edges, Tanishq is, according to Koshy Cherian, Regional Business Executive, western India, “growing at 50% in 2008, but I can't say anything about the future!” As Tanishq is nervous that the recession may erode the purchasing power of consumers it will, according to Koshy, “concentrate on increasing the number of walk-ins.” For greater business and to test the financial sustainability of international markets, Tanishq has forayed into the American market by setting up a store in Chicago, with a second store planned for New Jersey. However, the company wishes to set its footprint firmly in the domestic market. Says Sandeep Kulhalli, Vice President, Retail and Marketing Strategies, Tanishq: “We wish to dominate the Indian market as we see greater opportunities here.”

The attractiveness of the domestic market has not been lost on other jewellers either, who are suddenly viewing the Indian market through the prism of opportunity. As the dark clouds of recession gather in developed markets, Indian jewellers are focusing increasingly on the local market. Anant Padmanaban, Managing Director, GRT, Chennai, believes that “the Indian market is a very big market, after all we have a very large middle class which is a blessing. We can do good business right here.” Subhash Bhola of Bholasons Jewellers, Delhi, endorses this view and states categorically that “the domestic market is the best market and if you do business with the US in this environment, you can never be sure if you will get your money back!” He also discloses that most gold jewellers still retain 70% of their business, while the rural market has seen no fluctuations in demand. The Lucky Lakshmi Festival too, inaugurated on October 9, 08 saw an upsurge in the sales of gold jewellery and Ashok Minawala of Pallazzio, who is also the Chairman of Gems and Jewellery Federation of India, is confident that there “will be an increase of 50%-70% in the sales of gold jewellery in the last quarter of '08.”

Gloom in diamond market

However, gloom pervades the diamond industry. The Gems and Jewellery Export Promotion Council admits that there has been a decline in the sale of diamonds and diamond jewellery since last year, notably around Christmas '07. The lack of robust demand was partly due to the cessation of promotional activities by the De Beers Group as also the impact of luxury electronics on the Indian consumer, who has been unable to resist their seductive appeal.

When the recession began in right earnest in August '08, the sales of diamonds plummeted. Recently, GJEPC issued an advisory to its members asking them to cease buying diamonds for a month from November 25 - the underlying reason reportedly is to prevent a further slide in diamond prices. The diamond industry fears rampant unemployment, but GJEPC Chairman, Vasant Mehta, insists that “there may be an impact only on some factories in Gujarat which are into diamond exports. Besides, we have called international experts to talk to the industry to find ways to get out of this situation.”

Mehta's sanguineness is not shared by other members of the diamond fraternity. Avi Paz, President of the World Federation of Diamond Bourses, admits candidly that the industry will bear the brunt of the current numbing economic recession. Says Paz: “Though it is a strong and stable industry, the diamond industry is not an island and like other industries, here also we will feel the crises.”In an exclusive interview to Diamond World, Varda Shine, Managing Director, Diamond Trading Corporation, supports Avi Paz's views and elaborates that “the wholesale market for new rough diamonds in the major cutting centres has been impacted by the global economic crisis, principally as a result of liquidity issues.” She acknowledges that “this is driving De Beers' clients to correct their inventory levels and this will have a negative effect upon their ability to purchase new diamonds.” She agrees that “unemployment levels will continue to increase, but I would like to add that the global economic crisis is impacting employment levels across all industries.” Despite the fact that the jewellery industry has gone into a vicious tailspin, Varda Shine firmly believes that “the long-term dynamics of the diamond industry will remain strong. With future demand growth in emerging markets, such as China and India, demand is likely to significantly outpace the lower levels of global production for many years to come.”

But Rajiv Mehta of suratdiamond.com who has a vast clientele of Americans and NRIs is blunt about the stagnant nature of the present business environment. Says Mehta: “Diamonds are not a need-based item. People now do not have the money to buy these products. Besides, the Indian market is not as big as the American market you really can't sell 10,000 rings here. Actually, there is no country like America, in the sense that you can't substitute the quantum of the American market.” Both the Chairman of GJEPC and Rajiv Mehta strongly believe that to escape such crunches in the economy in future, India needs to explore other markets like China, the Middle East, Far East and Australia.

However, despite the GJEPC Chairman's claims to the contrary, the once-burgeoning diamond industry is already facing unprecedented employment. Since most workers are either from Kolkata or Gujarat, they are likely to return to their villages and their old profession - agriculture. The services of diamond vendors who worked from home, temporary employers and gold karigars who were on contract have also been terminated.

Slump in coloured stone market

Like the other sectors of the jewellery trade, the coloured stone segment of the industry has also been convulsed by the recession. In Jaipur which is the hub of the industry, many jewellers are now marketing silver jewellery for quick sales both in the domestic and overseas markets. In their shops abroad, Jaipur jewellers prefer that 50% of their stock comprises of silver jewellery for easy sales. Says Vivek Kala of Kalajee jewellery: “Jewellers work on trust. Now we are in a recession, those jewellers who have sent jewellery abroad worth $50,000 or $100,000 are going to have problems getting their money back.” Jaipur jewellers are also looking for ways to navigate the industry out of a faltering economy. Recently, a meeting was held in the city to list cost-cutting methods, like buying coloured stones in bulk, which would enable jewellers to hike margins and compete internationally.

The future

As the recession spreads inexorably and relentlessly across the globe, the duration of the world's worst financial meltdown in years is often nervously calculated. While Madanlal Bamalwa of Kolkata and Kala believe that the crisis will last for two to four years, Minawala is convinced that the recession, regardless of its duration, augurs well for India as it has not triggered off a collapse of the financial architecture of the Indian market. Most reassuring is Subhash Bhola who is firmly convinced that “if you face the situation with courage, cut down your expenses and don't over-borrow, aapki gaadi India mein chalegi (your work will continue in India)!”

The gems and jewellery industry in India works towards the future with that hope.