This year saw many developments in second biggest gold consuming country. Some major developments/events include implementation of GST, prevention of money laundering act (PMLA), announcement of Gold monetisation scheme in Budget and the alleged Rs13,000cr Nirav Modi scam.

In July 2017, the Government had rolled out GST and categorised gold jewellery in 3% bracket, which was higher than pre GST levels, which had 1% excise duty and 1.5% VAT. However, it provided level playing field to both organised and unorganised players benefiting players like Titan as compliance cost for unorganised players increased.

In August 2017, government had mandated PMLA for the jewellers having turnover of Rs2cr p.a. This mandated all cash receipts and payments of Rs50,000 or more to be kyc compliant. Subsequently, after the industry’s request, government withdrew its notification in October 2017. However, Government is expected to come back with a higher limit of Rs2,00,000 per transaction in near term.

After PLMA headwinds, jewellery sector was expecting some relief in budget. Recent budget announcement in February 2018 of implementation of comprehensive gold policy and to consider the gold as asset class have given industry some positive hopes.

But then came the PNB scam after which the expectations of credit tightening for Jewellery sector has increased. However, as of December2017, bank loans to gems and jewellery sector stood at Rs69,000cr, which is ~1% of banks total credit. The scam has also raised concerns over diamond certification authenticity. In March 2018, the RBI has also banned LoUs as a trade finance instruments, which may increase cost of imports as other instruments involve higher charges. Marginal players in the jewellery industry will suffer because of liquidity constraint.

Though above factors may affect the industry in near term. However, we believe that large organised players in the Indian gems and jewellery sector will see a positive trend towards higher demand for studded and wedding jewellery. This will be driven by rising per capita income leading to higher discretionary spending.

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