Financial institutions have not only tightened their guidelines for new lending but stiffened the documentation requirements for disbursal of already sanctioned loans. Large companies
with a clean record, however, face less pain than small and medium size units.
The impact has begun to be felt with a sharp decline in import of raw materials and in export.
"The ongoing slowdown in diamond business is the consequence of a seasonal decline in demand from both the domestic and overseas markets. The gems and jewellery industry
has been facing difficulties in raising working capital from financial institutions after increased documentations for existing and new loans," said Dinesh Navadia, Secretary, Surat Diamond Bourse.
Data from the Gems and Jewellery Export Promotion Council (GJEPC) showed a 16.4 per cent decline in export at $5.7 billion (Rs 377 billion) for the first two months (April-May) of this financial year, as against $6.8 bn (Rs 436 billion) in the same period last year. In 2017-18, export fell 7.8 per cent.
Import of raw material, mainly rough and polished diamonds, have also declined sharply. GJEPC data show an eight per cent decline in rough diamond import at 3.23 million carats for April-May from the same period last year. Cut and polished diamond import fell 52 per cent to $207 mn for April-May from a year before.
Sabyasachi Ray, executive director of GJEPC, however, termed the decline a 'correction', not a 'slowdown'. "The figures shown now indicate genuine business. Inflated figures with round tripping, etc, have gone out of fashion," he explained.
However, overall gold jewellery export showed a big jump of 83.3 per cent to nearly $2.1 billion (Rs 138.6 billion) for April-May over the period last year.
"Exporters were waiting for withdrawal in the five per cent value added tax (VAT) imposed by the government of the United Arab Emirates (UAE) effective January 1. Because of this VAT levy, Dubai has lost the cost advantage in gold jewellery that purchasers used to enjoy till last year. In the past two months, however, exporters shipped the gold jewellery they held for the March quarter, resulting in a sharp increase," said Rajiv Popley, director of a leading export entity, with retail shops in India and Dubai.
Vinod Hayagriv, managing director of C Krishna Chetty & Sons, one of South India's largest diamond jewellery retailers, urges the government to remove some relatively small irritants to bring the jewellery business on track.
"A number of consumers prefer to pay cash for jewellery purchase over Rs 200,000 but do not want to divulge their PAN (income tax number) for this. The government, therefore, must consider increases in the cap for the PAN requirement. Cntinuous raids and call for nitty-gritty papers is another hurdle we are facing on a regular basis, which should be removed. Over half of our time is going for compliance, affecting our business development," he said.