BANK FRAUD HITS GEMS & JEW­ELLERY EX­PORTS...

The de­cline is seen as a fall­out of a $2 bil­lion bank fraud un­cov­ered in Fe­bru­ary at PNB

Financial Chronicle - - GLOBAL, NATIONAL - ANIR­BAN NAG & VRISHTI BENIWAL

IT was sup­posed to add sparkle to In­dia’s more than $300 bil­lion ex­port sec­tor. But the gems and jew­ellery in­dus­try is do­ing quite the op­po­site – mak­ing it look dull.

Gems and jew­ellery ex­ports fell 16.6 per cent from a year ago to $3.4 bil­lion in March, the sec­ond straight month of con­trac­tion that acted as a drag on over­all ex­ports, ac­cord­ing to com­merce min­istry data re­leased on Fri­day. That has pushed In­dia’s trade deficit deep into the red and given more am­mu­ni­tion to ru­pee bears, who have driven the cur­rency to a five-month low. The trade deficit was at $13.7 bil­lion in March, climb­ing from $12 bil­lion in Fe­bru­ary. That’s also more than the $12.3 bil­lion deficit me­dian es­ti­mate of 25 economists sur­veyed by Bloomberg.

The de­cline in gems and jew­ellery ex­ports is seen as a fall­out of a $2 bil­lion bank fraud un­cov­ered in Fe­bru­ary at In­dia’s state-owned Pun­jab Na­tional Bank. Di­a­mond ty­coon Nirav Modi and his un­cle Me­hul Choksi are ac­cused by the bank of de­fraud­ing it by us­ing fake guar­an­tees to ob­tain loans from abroad.

That scan­dal threat­ens to stymie the bor­row­ing fire­power of the na­tion’s jew­ellers, who are in­volved in cut­ting or polishing 12 out of 14 di­a­monds sold in the world.

“Af­ter the scams there would be an el­e­ment of repe-da­tion in the in­dus­try,” said Biswa­jit Dhar, a pro­fes­sor at the New Delhi-based Jawa­har­lal Nehru Univer­sity, adding that the two things that drive In­dia’s ex­ports are gems and jew­ellery, and petroleum. “This is the lifeline of ex­ports.”

A widen­ing trade gap will put pres­sure on In­dia’s cur­rent ac­count gap, which stood at $13.5 bil­lion, or 2 per cent of the gross do­mes­tic prod­uct (GDP, in Oc­to­ber-De­cem­ber 2017, from $8 bil­lion a year ear­lier. For­eign in­vest­ments into stocks and bonds have also been slow­ing, rais­ing the risk of a wors­en­ing ex­ter­nal ac­count.

Ex­ports of gems and jew­ellery stood at around $41.5 bil­lion in the year ended March 31, lower than the $43 bil­lion in the pre­vi­ous fi­nan­cial year.

An­a­lysts say the bank fraud has hit the sec­tor hard, even as it was bounc­ing back from a chaotic im­ple­men­ta­tion of the con­sump­tion tax in July last year.

Go­ing for­ward, the pace of ex­ports of gems and jew­ellery would take cue from the avail­abil­ity of fund­ing in the after­math of the bank fraud as well as global de­mand, Aditi Na­yar, prin­ci­pal econ­o­mist at Icra, wrote in a note last month.

And that does not look too good for In­dian ex­ports amid the ris­ing threat of pro­tec­tion­ism.

“Some kind of tar­iff war has be­gun,” said Rupa Rege Nit­sure, chief econ­o­mist at L&T Fi­nance Hold­ings in Mum­bai, adding that ex­porters’ sen­ti­ment is also low cur­rently. “Putting all these fac­tors to­gether ex­ports will con­tinue to show de­cel­er­a­tion,” said Nit­sure.

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