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Packing-A-Punch - The effects of the sinking rupee
The government seems content with the dwindling rupee and the big players in the diamond industry are almost unscathed. But the real hit is being borne by the small-scale diamond manufacturers and dealers who are being pushed to rethink their future plans. Many of them are downsizing their employee numbers, as the future looks uncertain. Sandhya Sutodia and Priyanka Desai find out more...
By: Diamond World News Service
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Aug 5 2013 2:46PM
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Reference: 8067  

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Previously stumped by the rising price of rough diamonds this year, Indian manufacturers are now being hit by the falling rupee, which is sending the price of imported rough diamonds skywards as the rupee plumbs record lows of around 59 to the U.S. dollar.

Consumer sales are also being affected as higher prices feed through to stores, with the rupee falling by more than eight per cent since May 2013. India is the third-largest market in the world for diamond jewellery. “We have to calculate the price of polished stones in dollars,” said Praveen Nanavaty, chairman of Surat-based jewellery Company SHE Jewel. “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.”

In the first quarter of the current fiscal 2013-14, the rupee has depreciated by nearly 8.5 per cent against the dollar. “Rupee has breached the 61 mark against the dollar on July 8, 2013 and touched all-time low of 61.21,” said Namit Dave, an analyst.

DipakChoksi, regional chairman of the All- India Gems and Jewellery Trade Federation (GJF), shared, “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 costly than they were a few months ago.”

The dwindling rupee is not a good sign for the diamond jewellery industry, which is growing at 25 per cent year-over-year. It is a fear that end consumers will not be able to absorb such a huge price difference. The rupee’s latest decline has taken it much below its prior all-time low of 57.32 reached on June 28 last year.

The large current account deficit (CAD) has been a huge problem for the government who seems satisfied with a weaker rupee. The sinking rupee has helped the government to curb importsin aneffort to restraint India’s large currentaccount deficit.As part of that policy, thegovernment also increased duty on gold to eight percent from six per cent after demandfor the yellow metal soared in Mayto around 162 tons – almostdouble the average monthly level.

Though emerging marketcurrencies in general have beenhit by the dollar’s rise, which wassparked by a strong U.S. jobsperformance in May, the rupee hasbeen the hardest hit. But, has it stopped the Indian buyers from buying? The sinking rupee is beneficial to the exporters and it is a known fact that India processes more than 90 percent of the world's diamonds, most of which are exported. So, what are the true implications of this phenomenon?

Johan Dippenaar, Petra Diamonds, Chief Executive Officer told a wire agency, "Indian companies are still strong buyers, but I don't want to for one moment say 'no' it (falling rupee) will certainly have no effect."

Petra Diamonds hadheld an auction in Johannesburg recently. "We have not noticed an impact (from the weak rupee) on the number of Indian clients attending," company spokeswoman Cathy Malins shared.

India imported 31 million carats of rough diamonds in April-May, up about 26 percent from the same period in 2012, according to data from the Gems and Jewellery Export Promotion Council, an Indian trade body.

Petra Diamonds, which has seven producing mines in South Africa and one in Tanzania, is also sensitive to the movement of the South African rand, which hit a 4-year low against the U.S. dollar in June.

Like the rupee, the rand is getting hit by both local economic factors and demand for dollars as the U.S. economy recovers, arousing talk that the U.S. Federal Reserve will soon start to wind down its stimulus programme.

We asked Hitesh Patel, Director, Dharmanandan Diamonds for his view on the effects of the falling rupee. He shared, “Indian Diamond Industry is exporting the loose polished diamond nearly 85 to 90 per cent compared to importing the rough diamonds around 95 to 100 per cent. This trade deficit is believed to be consumed in India or it is churned in the stock of supply chain. As we already know, Indian jewellery market mostly trading in rupees, if Indian rupee has sunken against dollar this directly affects the cost of diamonds in the Indian diamond jewellery market.”

When quizzed which section of tradesmen are being the worst hit due to this phenomenon, Patel explained, “Looking at the current scenario, it is very difficult to do business for a small diamond manufacturer. Tradesmen are already working with very low profit margins due to the imbalance of rough and polished prices. For a smaller manufacturer the small profit has highly crunched due to the devaluation of the rupee.”

Vijaybhai of JB & Brothers had a different opinion. He said, “Diamond industry is not being affected by the dwindling rupee as the rough procurement is done in U.S. dollars and so is the sale of polished diamonds. In the world market, the prices of rough diamonds were already high and hence the rough procurement is expensive. It does not have much concern with the fall in rupee because the transactions are dealt in U.S. dollars.”

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