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DW Special: No Automatic Cover for Gems & Jewellery Industry Loans
The latest policy change to remove automatic cover for loans has come as a shocker to the gems & jewellery Industry.
By: Diamond World News Service
May 21 2014 10:56AM
Reference: 9145  

The Indian gems & jewellery is perplexed with the Export Credit Guarantee Corporation of India’s (ECGC) latest decision to remove automatic cover for loans given by banks to gems & jewellery industry. The abrupt decision has left many questions answered.

The ECGC’s main objective is to provide insurance cover in respect of risks in export trade. However, as per the latest policy change w.e.f from 1st May 2014, the gems & jewellery industry has been removed from the whole turnover cover and all new accounts will come under the individual cover. Henceforth, the ECGC will be reviewing every proposal before granting cover. The decision has come up in the wake of rise in the larger claims in the last fiscal.

Talking about the impact of the decision on the industry, Russell Mehta, MD, Rosy Blue India said, “Fearing the cost of taking such cover on individual basis may result in increasing cost for the borrower who avail finance from the Indian public sector banks (PSBs), since taking such a cover is a pre-condition for borrowing from the majority of the PSBs. The diamond industry generates valuable foreign exchange for the country; measures should be taken to facilitate smooth functioning of the industry. However, measures such as this harm the interest of the players in the Indian diamond industry as availability of bank finance at competitive interest will get adversely affected. This may also make it difficult for the members of the industry who obtain finance from the banks. We believe that higher number of claims in a particular year should not have been basis of taking such measure by ECGC.”

The industry is miffed at the ECGC decision as it feels that there is no need for the entire industry to suffer due to the wrongdoing of the few. Last fiscal saw companies like Winsome Diamonds, Gitanjali Gems and Shree Ganesh Jewellery approaching the lenders to recast their loans. Also, some of the players feel that the diamond industry and gems & jewellery manufacturing industry should be kept separate. Premkumar Kothari, Chairman & Managing Director, Fine Jewellery Manufacturing said, “It will certainly hit us adversely. Basically, we need to differentiate between Diamond/Gems industry (trading of diamonds and other precious stones) and Jewellery Manufacturing sector. If you look into history, major defaults have taken place in the Diamond (trading) industry. Whereas, on the other hand , Jewellery manufacturing industry has not only added to the exports of our country but being a labour intensive industry, this industry is one of the largest employer in our country. We supply our products to world’s largest and most prestigious jewellery retailers/ markets. Jewellery manufacturing sector is fairly organized and transparent as compared to the Diamond/ Gems sector. Hence, treating Jewellery manufacturing industry at par with the Diamond companies is a gross injustice. Like other manufacturing industries in our country, even our margins are wafer thin and we are surviving with a great difficulty. On the top of it when such restrictions are introduced, they certainly affect our business, profitability and stability.”

When Diamond World asked about the risks that the exporters see in future, Mr. Kothari added, “We do face risk of exchange fluctuations, gold rate fluctuations, impact of exchange fluctuations on gold rate fluctuations, inconsistent government policies on controlling gold imports. Fickle minded supports from banks, their tendency to panic at every small rise or fall in the factors mentioned above.”

Diamond World tried contacting ECGC policy makers but the officials declined to comment.

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