No chance of a gold rush
Savithri, a 40-something frequent-flier and a project manager with a large IT firm with a penchant for chunky jewellery, is feeling the heat from Indian customs every time she lands at IGI airport in New Delhi. “Gold,” she says, “That’s what the customs officers are looking for. Anyone carrying any type of jewellery is under their scanner.”
And with good reason. The government’s clampdown on gold imports in January this year–which has intensified since June–has seen an unprecedented surge in gold smuggling.
Gold prices in India currently command a premium of $120 per ounce over London prices, according to World Gold Council’s India managing director Somasundaram PR. It is this premium that is encouraging gold smugglers; by some estimates, smuggling has gone up by over 50 per cent this year. Market players estimate that gold smuggled into India is likely to go up to 200 tonnes in 2013 alone. “We have strong anecdotal evidence that shows gold smuggling has gone up substantially,” says Somasundaram.
Not that the smuggled gold is helping ease the shortage caused by the import curbs. Shelves in gold jewellery stores across the country lie barren this Diwali, and consumers have begun buying pieces which focus on precious stones instead of the yellow metal.
Near Bangalore’s Safina Plaza, Vinod Hayagriv, managing director at jewellers C Krishniah Chetty & Sons, recounts the same tale of bare shelves. “There is no import of gold taking place,” he says emphatically. “The shortage of stocks is evident in stores and customers can no longer buy off the shelf. They now have to place an order and wait for weeks,” he explains.
The ongoing shortage in the precious metal has put consumers and the gems and jewellery industry, which accounts for seven per cent of the country’s GDP, in a severe bind as Diwali and Dhanteras–the Hindu calendar’s traditional day for buying gold–draws near.
“The shortage is definitely there, but what is also worrying us is the retail price that is hovering around `32,000 per 10 gram,” says Satish Chand Singhvi, president, Delhi Jewellers’ Association. “The consumer is not upbeat about buying gold this festive season. People who would opt for big jewellery pieces are buying smaller ones. The demand is lower than the festive season last year.”
India is the world’s largest consumer of gold and also one of the largest importers, along with China. It imported 845 tonne of gold in 2012-13, valued at `2,45,862 crore. Between April and July, there was a huge surge in demand as prices fell. Imports of gold increased from 205 metric tonne in April-July 2012 to 383 metric tonne in April-July 2013; this was an increase of 87 per cent.
Subsequently, imports have fallen to near zero as the government has clamped down on demand by introducing a 10 per cent import duty and linking the import of gold to export commitments based on the 80:20 principle, whereby importers have to re-export 20 per cent of their imports.
These measures have brought imports to a virtual halt in recent months and dried up legitimate supplies for the jewellery trade, where demand continues. “Gold demand is robust as a good monsoon has created rural purchasing power. We stand by our estimate of India’s gold imports being in the range of 900 to 1,000 tonne,” says WGC’s Somasundaram.
The organised players have been impacted the most by the shortage and have been outspoken in their criticism of the government initiatives. “Gold is a soft target. The finance minister is coming down on gold to cover up the ills of the economy,” says Gitanjali Exports managing director Sanjeev Agarwal.
Not just that, the government has even banned the import of gold coins which are considered to be auspicious gifts (vis-a-vis investments) and which the industry wanted for the festival season.
“What is worse is that the gold metal loans that gave jewellers access to funds at 4.5 per cent has been suspended by the Reserve Bank of India, and we now have to pay 14 per cent interest as working capital,” says Ajay Mehra of Mehrasons.
“Sales are down this Diwali compared to the last year. The entire industry and its employees are facing serious challenges.”
Industry associations are echoing these sentiments. In a letter to Union industy and commerce minister Anand Sharma, FICCI has emphasized that the shortage of gold is impacting the livelihood of over 1.15 crore craftsmen, a majority of whom are self-employed or work in the micro and small sector. This is, in turn, hurting attempts to ensure inclusive growth in an industry where more than 80 per cent of the jewellery is hand crafted by skilled artisans, FICCI states in its letter.
“The collateral damage is high,” agrees Hayagriv, a board member of the All-India Gems and Jewellery Trade Federation, referring to the shrinking worker’s wages in this normally ‘high-earning’ season. Jeweller Ashok Kumar, who is also a member of the association, points out: “It’s that time of the year when artisans are busy as the demand for jewellery surges. However as gold is in short supply, thanks to high import duties, we jewellers are getting fewer orders and the artisans are thus getting less work.”
Gitanjali’s Agarwal says the supply shortage is so bad that even smuggled gold is hard to come by these days. So what are organized players like Gitanjali doing in times of such scarcity? “We are increasingly looking at the export market and increasing efforts both on the product side and the marketing of diamond and semi-precious studded jewellery (instead of gold jewelry),” adds Agarwal.
Unless more raw material can be made available, it’s only the smugglers that’ll be assured of a gilt-edged future.