In addition, the lingering fear that the government might again decide to impose excise duty on jewelry is another worry. However, the government’s decision to allow foreign direct investment (FDI) in multi-brand retail, which opens the door to the likes of Wal-Mart, the world’s largest retailer and jeweler, is perceived by existing Indian jewelry brands as presenting an opportunity.

 

Abhishek Gupta, President of Gitanjali Gems a countrywide branded jewelry retailer with such labels as Nakshatra, Asmi, Sangini, Porrati, thinks the entry of global multi-brand retailers into India presents companies such as his a wonderful opportunity. “Wal-Mart won’t be able to simply come into India and sell its own branded lines – it won’t work because the Indian market isn’t going to take to something so new in a rush. They’ll need Indian brands to partner them. What they will do in all probability is to develop their own version of the Shoppers Stop or Pantaloons model and offer shop-in-shop facilities to existing Indian brands.”

 

Gupta naturally thinks that the entry of Wal-Mart into the Indian market will offer existing Indian brands – particularly those with a pan-India presence – a huge opportunity. He segments the Indian consumer into three categories – the investment buyer, the necessity buyer who has a wedding or such occasion in the family and the consumption buyer who is driven by fashion and other impellers like the need to reward oneself etc. “The move away from pure investment and intrinsic value to a consumption-based mind-set is well under way,” he says adding, “Gitanjali is already in that space and we see the segment growing rapidly.”

 

While it might not offer them an opportunity the way it does the branded players, the non-branded retail segment doesn’t think Wal-Mart’s entry poses any major threat. “There is definitely a vacuum in the Indian jewelry retail space for branded jewelry,” says Bachchraj Bamalwa of Nemichand Bamalwa of Kolkata, the outgoing chairman of the GJF, “but between 80 and 90 percent of the jewelry sold in the country doesn’t have a significant value addition over its component costs. Branded jewelry, especially the low-end kind that Wal-Mart sells, isn’t viable without a large added-value component for the brand.”

 

“Wal-Mart will get a share of the market share – maybe a few percent, but it won’t have a very big impact. Rapid expansion of branded jewelry from the big operators is not likely in the short term. But as I said, there is a vacuum in the market and so they will grow. Indian firms in branded jewelry at the low end already account for some 5-6 percent of the market,” Bamalwa added.

 

The looming threat of a gray gold market that could undermine the industry has everyone worried. Haresh Soni of Premji Valji Jewellers in Rajkot and incoming chairman of GJF told IDEX Online, “The government’s increase in the import duty on gold to 6 percent will encourage the development of a gray market and lead to consumer confusion. The result of the increase in import duty will be that the total import of gold will become decontrolled. Until now, the yellow metal has come through strictly controlled channels.”

 

Soni went on to say that a gold gray market will have lower prices and that will leave the consumer confused about what to buy. “The increased margins between the officially imported gold and that which has evaded the duty will only increase the likelihood of smuggling.”

 

Soni felt that the government might have tried other ways of curbing gold consumption. “This measure will have some effect in the short term but won’t in the end really curb the Indian consumer’s appetite for gold. The Indian consumer still wants gold and will resume buying it once the situation becomes more settled,” he said.

 

Bamalwa emphatically echoes this. “The single biggest threat is the gray market that is clearly growing as a result of the increase in import duty on gold. We saw signs of it when the duty was hiked to 4 percent some time ago. Now it is a really big threat. Gitanjali’s Gupta too chimes in to say, “We saw a huge gray market in existence over a decade and a half ago when the import duty on gold was very high. We’re going back to a similar situation.”

 

N. Anantha Padmanabhan of NAC Jewellers of Chennai says, “All these years, we’ve been trying to get out of the gray area and put an end to the parallel economy. With this piece of legislation, we have the government itself aiding in the creation of a parallel economy!”

 

He goes on to outline the details of another serious issue facing the jewelry retail industry in India.Explaining the implications of the anti-money-laundering that has been passed in Parliament, Padmanabhan notes, “The law requires a retailer to record the details of customer’s income tax permanent account number (PAN) card for any transaction above Rs.5 lakh ($9,419). If a customer shows the retailer a PAN card that is not correct in every detail – and the retailer has absolutely no way of checking on it – the retailer is liable to go to jail. It is a non-bailable offence of the sort where you can be arrested for buying stolen goods.”

 

 “The legislation has been passed into law and now only awaits government notification before becoming operational. The potential harassment that jewelry retailers will face can only be imagined.”

 

While also listing the anti-money-laundering act as one of the big challenges facing the jewelry retail industry, Bamalwa however is cautiously optimistic about jewelry retail’s prospects in 2013. “We saw value growth in 2012 because the price of gold and diamonds shot up. In terms of the number of pieces sold, however, it was far from being a growth story. We’re hoping for a volume growth this year. The price of gold is coming down and it is already cheaper than it was before the import duty was hiked to 6 percent. The rupee has appreciated between 2- and 3 percent and overall, the economic climate appears to be attractive for consumers.”