Indian jewelry exporters are fine-tuning their business strategies following the imposition of a 6 percent duty on jewelry imported from India to U.S. In late June, the U.S. government withdrew a waiver of the levy under the Generalized System of Preferences (GSP) scheme.

 

Gold jewelry from India and Thailand are no longer GSP-eligible because they are subject to new thresholds established in the Tax Relief and Health Care Act of 2006.

 

Under that law, the U.S. President should revoke any waiver that has been in effect for five years or more if the beneficiary country has exported to the U.S. during the preceding calendar year a quantity of the article that has an appraised value in excess of $187.5 million in 2006 or exceeds 75 percent of the appraised value of the total imports of that article into the U.S. during that calendar year.

 

The move is a blow to an industry that is already feeling the impact of the slowdown in demand from the U.S., the world’s largest jewelry market and the rising value of the rupee against the dollar.

 

The U.S. accounts for about 40 percent of India's total jewelry exports. Last year India exported jewelry worth $2.2 billion, about 33.2 percent of U.S. jewelry imports. China, the second largest source, exported $712 million worth of jewelry, which accounted for just over 10 percent of the market.

 

Sanjay Kothari, chairman of the Gem & Jewellery Export Promotion Council (GJEPC) says, “The move by the U.S. government is a matter of concern to us, and we are continuing our efforts at various levels to urge them to reconsider our case. At the same time, the industry is trying to develop a strategy to move forward in the new scenario – expand to new markets, increase efficiency and competitiveness and take other appropriate action.”

 

Hemant Shah, GJEPC’s convener of the Promotion, Marketing and Business Development Committee, believes that Indian companies will now have to focus on product development and innovation. “Better designs and quality, new concepts and attractions are now needed. If Indian jewelry is appealing to the end-consumer not just because of the price factor, it will enable exporters to retain, and even increase their margins.”

 

Meanwhile, companies are still trying to gauge the situation. Ankit Mehta of D.Navinchandra & Co believes that there will likely be a revival of some jewelry manufacturing in the U.S., and therefore a greater demand for loose polished diamonds. “Indian companies who had reduced the strength of their U.S. offices may now have to think of reviving these operations.

 

“We also need to make Indian jewelry more efficient and cost effective and further develop abilities in terms of both manufacturing and marketing,” he comments.

 

Others, like Shagun Shah of jewelry exporter USA Diamonds, say that companies may have to be prepared to face reduced margins to maintain overall business volumes.

 

There is however a consensus that the move will not have an immediate impact, except on a certain section of the industry – particularly higher end jewelry using larger stones, a business which will probably move back to being manufactured in the U.S. Kothari believes that the impact on the lower-priced goods will come later. “The majors [retailers] who have already confirmed large orders will find it difficult to make changes in the short run, but we could see a negative impact on this segment too in the next season.”

 

A number of exporters have begun discussions with importers and are confident that they will be able to reach some understanding regarding the increased financial burden and continue to do business - except in the case of higher end jewelry where the duty component will translate into a large amount.

 

According to Mehta, “The longer term picture will be clearer in two-three months.”

 

Meanwhile, Raghav Narasalay of Economic Laws Practice (ELP) who consulted the Indian exporters when they lobbied the U.S. government against the withdrawal last year, points out, “The industry is still fine-tuning its response but already some senators who supported the continuation of the duty waiver have begun publicly asking the U.S. government to reconsider the decision.”