The gems and jewellery business is going through some drastic changes caused by this unprecedented pandemic. It has brought a lot of difficulties for business. There is going to be a more profound and prolonged impact on business over the coming year, than could have been predicted three months ago.
 
From a manufacturers’ perspective the industry has been hit very hard and domestic studded jewellery manufacturing sector is on the verge of collapse. It has become impossible to continue business in the current state. 

Over the years, the domestic studded jewellery manufacturing sector has absorbed most of the cost burden yet continually providing innovative lighter products along with newly introduced services like hallmarking and CVD testing.
 
Today, these manufacturers are facing daunting challenges: 

1. Gold rate has moved up from Rs.18000 in 2010 to Rs.50000 as of today. This increase in gold rate has completely skewed the gold to diamond ratio. The gold ratio in a piece is 60-65 per cent of the value today. The manufacturing time along with the credit provided is putting a heavy burden of interest cost. 

2. Gold loss incurred in manufacturing a piece for jewellery has tripled over the years considering the upward trend in the gold price. In the current pricing structure that they have gold loss is not factored separately which in turn as led to large impact on the costing of every piece being manufactured. 

3. Labour Rates have gone up in actual terms for a manufacturer considering every aspect in the cost structure has seen an increase – 

Listed below are some of these…
 

• • Wages have moved up by over 150 per cent in the last 10 years. 
• • Electricity has doubled in the last 10 years. 
• • Consumables Costs – most of the consumables and machines are imported and dollar rate has plummeted by over 75 per cent from an average 45 in 2010 to 77 this year. 
• • Rhodium cost per gram which used to be around Rs.1500 in 2010 has ballooned 10 times to Rs.16,000 in 2020. 
• • Alloy cost has doubled in this same period. 
   

Business Sustainability 

4. Finance Cost and raising finance has been a large challenge – Many banks have been tough and the co-lateral norms have changed for all. Besides that the working capital requirement has only gone up considering the gold rates / increase in production cycle time due to certification, etc / change in exchange rates / GST implementation as they end up paying the GST amount in advance. These are some of the major aspects that have impacted the sector, making business more and more challenging each day. 
Besides this there are many indirect cost that they have absorbed over the years to support the retail trade through the changing business requirements.
 
Indirect Aspects That Impact Costs 

1) With retail focusing on price points and value for money product with a larger spread – they are forced to use finer sieve goods which in turn reduces the productivity and increases cost. 

2) The labour rates are based on a per gram costs, with immense pressure on improving the diamond to metal ratio from a retail perspective the per piece value addition has seen a downfall. 

3) Added services like CVD screening at loose bagging level and finished jewelry stage have added both capex and a per piece cost to process the screening. 

4) Certification and Hallmarking co-ordination also adds in manpower as well as material movement cost are also high. 

5) Stone changing based on the certification labs and third-party verification also adds 3-5 per cent to the diamond cost where most issues are subjective. 

6) With expedited delivery requests the manufacturers are forced to hold inventory to manage a quicker turnaround time. 

7) To maintain the minimum karatage of gold manufacturers are using a higher purity of metal and supplying the same at a lower cost. 

8) Gold Rate difference – manufacturers are buying gold from the banks at the MCX rate plus service charges, whereas while billing the goods they are expected to supply at a lower rate which is a rate derived from unknown metal vendors. 

9) Returns also have a large impact on costs as melting losses are high. 

10) Product development costs have gone up considerably as they are working on more exclusive collections and service customer order requests that require model changes. 

All in all, from 2010 to 2020 manufacturers are being impacted from various fronts and are only seeing their costs rise, but do not see any change in the value addition. 

With the way things are going, sustaining the business is next to impossible which in turn aspects the offering / new talent / innovation that they can bring on the table. They are unable to satisfy the aspirations of the large work force that is depending on them, nor are they able to invest in innovation nor new technology nor keep banks / investors happy.