Indian Jewelry Industry Fears For Sales as Rupee Declines

(IDEX Online News) – Already hit by the rising price of rough diamonds this year, Indian manufacturers are being battered by the sinking rupee which is sending the price of imported rough diamonds higher as the rupee plumbs record lows of around 59 to the US dollar.

And consumer sales are also being hit as higher prices feed through to stores, with the rupee falling by more than 8 percent since last month. India is the third-largest market in the world for diamond jewelry.

"We have to calculate the price of polished stones in dollars," Praveen Nanavaty, chairman of Surat-based jewelry company SHE Jewel, told The Times of India. "However, a stone that cost 80,000 rupees a few months ago would now command a price of 100,000 rupees due to the weakening of the rupee."

Meanwhile, Dipak Choksi, regional chairman of the All-India Gems and Jewellery Trade Federation, said: "Polished diamonds are priced in dollars and the consumers have to pay as per the current rupee rate. Add to this, the eight per cent duty on gold import. The end diamond jewelry articles are going to be more costlier than they were a few months ago."

And a Mumbai-based leading DTC sightholder and jewelry manufacturer said, "This is not a good sign for the diamond jewelry industry, which is growing at 25 percent year-over-year. Consumers will not be able to absorb such a huge price difference."

The rupee's latest decline has taken it well below its previous its all-time low of 57.32 reached on June 28 last year.

Although a weaker currency helps exporters, it is a blow for importers. The government is satisfied with a weaker rupee since it has been trying to curb imports in a bid to curb India's large current account deficit.

As part of that strategy, the government earlier this week increased duty on gold to 8 percent from 6 percent after demand for the yellow metal soared in May to around 162 tons – approximately double the average monthly level.

It was the second time this year that the government has raised tax on gold – after increasing it to 6 percent from 4 percent in January – to the dismay of the country's jewelry industry which claimed it would serve to reduce sales.

The Times of India described the rupee as "the most battered" of the Asian currencies and its decline is due to India's "significantly larger current account deficit".

Although emerging market currencies in general have been hit by the dollar's rise, which was sparked by a strong US jobs performance in May, the rupee has been the hardest hit.