India’s gem and jewellery exports may be hit due to ongoing Israel-Hamas conflict

Israel imports gems and jewellery from India, re-exports with some value addition to developed countries, and is also the technology provider to the sector

The escalation of conflict and its prolongation in West Asia could sound trouble for India’s gems and jewellery exports which are already facing headwinds, as the cost involved in shipments to Israel and some of its biggest markets in the region could increase.

West Asia’s share in India’s exports of precious stones and jewellery is around 17% of the total which was $37.9 billion in the last financial year, with exports to Israel another $1.3 billion.

Gems and jewellery is the second biggest item of exports from India to Israel after petroleum products (mainly diesel).

Israel imports gems and jewellery from India and re-exports with some value addition to developed countries. Israel is also the technology provider to the sector.

Cut and polished diamonds constitute the highest exported commodity category with a trade of $1.27 billion. The second highest commodity category Worked Labs Grown exports were $40.65 million in 2022-23.

While diesel demand is inelastic so demand might remain or even increase, the local demand for India’s jewellery in Israel may also decline due to downturn in sentiment in the middle of the conflict. Currently,the area of the conflict and number of active participants is limited so the damage fallout can be managed but experts are already pointing to the chances of long-term damage.

“It is too early to say anything about how things will unfold in this situation and how it will impact the trade between India and Israel. However, we are accessing the situation and talking to our suppliers and it might take days,” said Sabyasachi Ray, Executive Director, Gems and Jewellery Export Promotion Council. “Israeli importers of gem and jewellery may face the problem of higher insurance costs and freight costs if the conflict escalates any further,” he added.Other items of export to Israel hardly clock $250 million in billing. On the import front, India has increased its purchases of fertilizers from Israel in the last financial year to $402 million from $203 million in 2021-22.

Generally, a conflict increases risk premiums and shipping costs which may reduce profit margins of exporters. It also increases the cost of buying export credit risk cover. In India Export Credit Guarantee Corporation (ECGC) does this job. “The main commodities which are exported to Israel from India are petroleum products and gems and jewellery. Exporters of these two categories do not come to ECGC for insurance cover. So, the exporters of ECGC are not going to be impacted much by the ongoing conflict in Israel,” a senior official of ECGC told FE.

In West Asia crude oil also comes into the picture.“Immediate impact of the conflict in trade will come in the form of higher oil prices which will push up costs and hurt competitiveness of exports at the time when the world trade and economy is in a slowdown. The cost of conducting trade would also go up in terms of logistics and other costs, Biswajit Dhar, economist and trade expert, Former Professor at Centre of Economic Studies and Planning at JNU said.

He said if the conflict expands in terms of area or continues for a longer period impact on India’s trade and investment prospects would be visible.India’s biggest export markets – UAE and Saudi Arabia – are in the region. UAE is the second biggest export market for India while Saudi Arabia is at number 8. India’s exports to UAE were $31 billion in the last financial year while exports to Saudi Arabia were $10.7 billion.

Investment commitments by both Saudi Arabia and UAE in India are close to $175 billion in the coming years.

The conflict also has the capacity to derail the ambitious India-Middle East Economic Corridor that was agreed to in September on the sidelines of the G-20 Summit. The corridor has been planned to connect India to Europe through the Middle East through a network of shipping lanes, rail links and roads. Israel is one of the participants in it along with other key nations of the region. Conflict would create a further political divide between the countries of the region.

“The whole idea of the corridor is to facilitate trade and investment so impact would come from there too,” Dhar said.

He said India has an important role in the de-escalation process. “India is still the president of G-20 and at the virtual summit of the grouping in November something should be done on that count.”

Courtesy: financialexpress.com