Gems and Jewellery sector's wish list to tackle crisis

06 Dec '08

6 min read

17.Gold Jewellery exporters maybe allowed liberty to import bullion directly atleast for the span of one year to avoid such crisis. Parameters maybe defined to identify such Gold Jewellery exporters. Export obligation for gold imported to be completed within 6 months from the date of import.
18.Nominated Agencies may be allowed to sell gold at specified areas in India to domestic jewelers & exporters against sale of bullion at those areas. Sales to exporters should be both in bulk and in small lots of lesser than 10 kgs.
19.Duty Drawback Scheme for Gold maybe introduced for precious metal which may help in solving the issues of the Industry to a great extent.
20.A provision for duty free transferable license for gem & Jewellery exporters may help exporters to offset their incurred losses.

The Gem & Jewellery industry has jointly announced import ban on rough diamonds for a period for a month with the above effect to indirectly share the financial burden & contribute to financial restoration of normalcy.

Major causes of Concerns for the Gem & Jewellery Sector:

Diamonds:
·50% of Industry import is done by USA market alone. An observation of drastic drop in consumer demand has resulted in inventory accumulation at all levels.
·Raw Material stocks already purchased and stocked are incurring increasing interests as a result of which the exporters are facing liquidity crisis.
·Moreover the export receivables from USA markets have got delayed resulting in the working capital credit limits getting blocked. Higher interest rates & penal interest rates charged by banks are adding pressure on the exporters.
·We are aware that the Industry operates on dollar transaction & financial institution sanction limits on Indian Rupee. The Current Rupee depreciation has already lead to 25% drop in credit facility for the Indian exporter penalizing him more with non-availability of sufficient dollar finance which attracts high interest on rupee credit.

Gold:
·Only few international banks like Nova Scotia, Commerce Bank and Standard Bank supply gold to Indian banks on loan basis.
·Major international players like JP Morgan Chase is absent, HSBC has marginal presence with MMTC and Barkley who are only on physical sale business but not in gold loan practice.
·Due to global economic melt down, most of the suppliers are not in a position to provide clean loan at the rates agreed upon earlier with Indian banks. Some suppliers would like to reduce size of their loan book due to internal balancing pressures.
·Commerce Bank has been requesting Indian banks for re-drafting of the supply agreement for earning them interest from day of lending of the metal & Standard Bank intends to close their loan book by 31st December, 2008
·Indian banks are requested to park USD funds or other currency funds to avail larger gold loan facility. In present scenario Indian Banks would notlike to block their foreign currency and other loan lines for bullion as other areas would be offering better returns. Indian banks are not keen to do this as hitherto doing business with gold sent on consignment basis.

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