Will Yuan Devaluation Affect Jewellery Industry?

The recent global economic turmoil has affected performances of many countries including India where analysts and leaders of different industries are assessing the prospective impacts of yuan devaluation and rupee depreciation.

India stands to benefit from China’s slowdown thanks to its resilient consumer spending and improving macroeconomic fundamentals. The foreign media is taking note of the growth potential of India’s economy acknowledging its strengths against the backdrop of a slowing China and a sluggish global economy.

A report published recently in the Wall Street Journal says, “India has not been as badly shaken as Brazil, Russia or South Africa as it has got ample international reserves and it is not greatly dependent on foreign capital to fund its imports. Besides, the country does not rely on exporting resources which means receding Chinese demand for minerals and metals is not serious. India does not even have many companies competing in the third markets against Chinese exporters which benefit from a weaker yuan.”

But among these conditions, the gold prices continued to edge higher because of the increased demand from jewellers and falling rupee amid worries over China’s slowing economic growth. The yellow metal prices reached to INR 27,575 per 10 gm during the last week of August, 2015. The increase in demand of gold from jewellers ahead of the wedding and festive seasons has helped the prices to move up. The recent crash in domestic stocks markets is largely responsible for the sharp rally, industry leaders feel here.

Chairman & Managing Director of P. N. Gadgil Jewellers Pvt. Ltd. and Vice President of the India Bullion & Jewellers’ Association (IBJA) Mr. Saurabh Gadgil says, “Gold is considered as a safe investment bet even during the volatile times as it is usually long term in nature. During the recent fall in the prices of gold, consumers’ demand for gold bars and coins was heavy. We also received substantial amounts of pre orders for customized wedding jewellery.”

Speaking about the domestic jewellery demand, Mr. Gadgil says, “With the gold witnessing sharp fall and rise due to recent global market sentiments and economic movements, consumers and investors are little bearish at the moment. But the situation is likely to be under control with the gold prices stabilizing by Diwali. Festivals in India are considered to be sacred times to invest in or buy jewellery. Jewellery sales do escalate during festivals like Ganesh Chaturthi, Diwali, Christmas and wedding season where consumers are likely to make purchases irrespective of the volatility in the prices of gold and other precious metals. This is largely attributed towards consumer sentiments and emotions attached with such occasions. Considering the fluctuations in the prices of precious metals we are expecting a rise of 20% to 30% in our sales by the end of this year.”

But on export front, the leaders hold different opinions about the prospective impact of INR depreciation or yuan devaluation. Mr. Vipul Shah, Chairman of India’s Gem & Jewellery Export Promotion Council (GJEPC) says, “I think the rupee downfall will not have negative impact on the gems and jewellery exporters. Even though the prices of raw materials will rise but as our inputs are mostly from imports, it will be offset by higher export realization.”

Mr. Gadgil says, “There will be substantial impact on India’s jewellery exports considering the devaluation of yuan and weakening of Indian rupee. However, the situation is temporary. With the intervention of Reserve Bank of India to curb the situation and the beginning of festivities and wedding season, jewellery industry is likely to see a positive growth in the second half of the current fiscal.”

A monthly newsletter of the Department of Industrial Policy and Promotion (DIPP) says that the devaluation of yuan is expected to affect the domestic industry as it would make the Indian exports costly in the global market. The impact of devaluation of the Chinese currency on Indian industry is expected to be threefold.”

But as mentioned in report of the Wall Street Journal, India highlighted the strength of country’s economy to withstand any turmoil in the Chinese and global economy. The governmental authorities have pointed to the healthy foreign exchange reserves, improving macroeconomic data and the continued interest of foreign companies to tap into India’s demand.

Posted by Suresh Chotai