Gold development in India

Gold development in India

Evolving demographics of the past years have lead to rapid changes in India which is the world’s second-largest gold jewellery consumer. The most important drivers of Indian gold jewellery demand remain weddings and festivals and just bridal jewellery accounts for at least half of the market share. Over the long term, gold jewellery demand in India will be driven by developments in economic and income growth, wealth distribution, as well as the rate of urbanisation.

India’s gold jewellery exports have grown over the years, rising from US$7.6bn in 2015 to US$12.4bn in 2019, before the pandemic impacted the trade in 2020. Looking ahead, there is a greater need for Indian gold jewellery exporters to develop new markets; currently, nearly 90% of exports go to just five countries. But a boost could come in the form of further pro-posals that will allow advance payments to overseas precious metal suppliers, as well as the formation of the mega-CFCs (Common Facility Centres) in the Santacruz Electronics Export Processing Zone (SEEPZ) of Mumbai and Surat.

Bridal gold jewellery dominates the Indian gold jewellery landscape and gold is intrinsic to Indian culture, closely tied to religious beliefs, tradition and festivals. Bridal jewellery domi-nates the gold jewellery landscape, enjoying 50-55% of market share; weddings, together with festivals, constitute the two major gold purchase occasions in India.

In the absence of official records, the country is estimated to have around 11-13 million weddings per year. With women marrying at an average age of 22 and with more than half of the country’s 600 million population below the age of 25, demand for bridal jewellery looks set to remain strong over the long term. The importance of this type of jewellery in India stems largely from the fact that the gold gifted to a woman for her wedding is solely her property and is therefore an important form of financial security.

Agriculture remains important to gold demand. India has seen significant urbanisation yet 65% of the population still live in rural areas and depend on the land for their livelihood. Gold remains the most popular form of investment for these communities and while access to bank accounts has increased, faith in gold has not diminished. Gold demand in this seg-ment is seasonal, closely linked to the success, or otherwise of harvests.

Plain gold jewellery retains a dominant market share. Despite the traditional nature of India’s gold demand, consumer behaviour over recent years has changed and continues to do so. Plain gold jewellery maintains 80-85% of market share, the majority of which is 22-carat alt-hough the market for 18-carat jewellery is growing.

The country exhibits distinct regional preferences. Studded jewellery, known as Polki, Kun-dan or Jadau, has an estimated market share of 15-20% overall, although in Northern India this share is considerably higher. In the South, consumers are more inclined towards plain gold products, 60-70% of which are studded with diamonds and the remaining 30-40% set with precious or semi-precious stones.

Manufacturers are increasingly focused on producing lightweight pieces to satisfy demand from the younger consumer, especially those who want daily wear gold jewellery that matches their adoptive Western-style attire. Silver jewellery is becoming more common due to high gold prices and platinum is making an appearance, particularly in male jewellery items, but neither appear to have the cultural significance or the aspirational quality of gold and therefore do not pose a major threat.

India remains one of the world’s largest exporters of gold jewellery. In recent years, the US has surpassed the UAE as the largest export destination for Indian gold jewellery. This re-flects two developments. First, the imposition of extra tariffs on Chinese jewellery exports to the US, which has made Indian exporters more competitive and, second, the implementa-tion in the UAE of a 5% import duty in January 2017 and 5% Value Added Tax (VAT) in Janu-ary 2018, both of which negatively impacted competitiveness.

But under a Comprehensive Economic Partnership Agreement (CEPA), which was intro-duced in May 2022, 90% of Indian goods will be allowed duty-free access to the UAE. This will have far-reaching effects as goods sold there are re-exported to other countries and al-ready this has resulted in a substantial rise in India’s gold jewellery exports.

Over the last few years the Indian gold market has grappled with numerous changes in the regulatory environment and in consumer behaviour. Looking ahead, gold jewellery demand will face further challenges. Changing demographics and the possibility that millennials will move away from gold as other luxury items demand their attention cannot be ignored. Against these headwinds, gold jewellery demand will likely benefit from strong economic growth and growing urbanisation as incomes rise and the middle class grows. As more peo-ple are lifted out of poverty, gold jewellery demand will benefit.

E-commerce opportunities are increasing and as a more robust regulatory structure emerg-es to support online gold jewellery sales at home and abroad, manufacturers and retailers will be able to use this to extend their reach.

The Indian government seeks to boost manufacturing and exports, and as consequence jewellery exports are likely to improve further over the coming years. Proposals to allow ad-vance payments to overseas precious metal suppliers and to set up Mega Common Facility Centres (CFCs) in the Santacruz Electronics Export Processing Zone (SEEPZ) in Mumbai and Surat could stimulate growth in the sector if implemented.

The CFCs could facilitate sharing of manufacturing best practice and state-of-the-art machinery, which would bring the latest technology and resources within reach of small manufacturers. If these efforts are support-ed by appropriate communications around both quality and craftsmanship, the future of In-dia’s gold jewellery market will be assured.

Overall, it is believed that the Indian market will continue to evolve as the younger genera-tion drives trends and as organised retailers gain market share. Retailers are trying to tap in-to the sizeable young population by offering products that suit their tastes and budget. It has made us adjust not just our product offerings, but also how we do business and interact with consumers.

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