The gems and jewellery industry in India has been dealt a double whammy this year, severely affecting its growth. The sector, which grew 45-50 percent in FY2021-22 (on a lower base in FY2021), is likely to grow only 1-3 percent in the current fiscal timescale in value terms, according to the CRISIL SME Tracker reported in Business Standard.

An increase in import tariffs to 12.5 percent (an increase of 500 basis points) and supply chain disruptions due to the war in Russia and Ukraine led to a decline in exports.

According to the report, domestic demand, which accounted for 55-60 percent of the total sales value in FY22, increased in Q1 of the current fiscal-term due to a low base. The growth story is likely to be dampened by an increase in import duties. Domestic demand will also be affected by the rise in gold prices, but this is likely to have a positive impact on small and medium enterprises, especially the gems and jewellery cluster in Thrissur and Coimbatore, which deals in regular gold and traditional jewellery.

Surat diamond cluster may also be affected by supply chain disruption and high base effect. Due to the invasion of Ukraine, the USA and Europe imposed sanctions on Russia, which affected the import of diamonds into India and thus hit the polishing industry. However, the recently signed free trade agreement between India and the UAE has led to the removal of the five percent duty on gold jewellery, boosting exports from India.

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