Following the central government’s demonetisation drive and the subsequent searches by income-tax authorities, jewellers have adopted various methods o keep their sales momentum going.
To lure customers, jewellers not only accepted banned currency notes of ~500 and ~1,000 denominations for the initial two days from the date of the ban but also facilitated personal delivery of ornaments to customers with large orders. Now, continuing this process, jewellers have started selling ornaments with ~280 or nearly one per cent discount to customers who prefer online transfer of money either through real-time gross settlement system (RTGS) or national electronic fund transfer (NEFT).
Apart from online transfer of funds, jewellers also encouraged cheque payment of the value of jewellery.
“In order to encourage sales through electronic transfer of money, jewellers offer a discount of ~280 per 10 gram on the value of gold ornaments. This means, customers can avail standard gold at ~29,400 per 10 gram when its real market value stands at ~29,680 per 10 gram,” said Kumar Jain, director, Umedmal Tilokchand Zaveri, a bullion dealer and jeweller retailer in the popular Zaveri Bazaar.
Gold coins and bars, however, continue to fetch fair price without discount. But, the growing uncertainty has reduced bullion demand. According to Prithviraj Kothari, managing director of RiddiSiddhi Bullions, jewellers are abstaining from fresh purchases probably on expectations of price fall. “Consumers are cancelling orders that they had placed months ago to honour commitment for wedding gifts. Occasional buying from retail consumers has also remained on hold. The ongoing scenario might yield liquidity problem in medium- to long-term,” said Kothari.
Weak demand has reflected on gold prices, too. Gold price in both Indian rupee and dollar terms has declined sharply over the past 10 days due to disappearances of black money from the system.
“Normally, consumers used to buy bullion and gold with surplus money and they preferred to avoid actual bills especially for bullions. But now, since jewellers demand cheque payment or online transfer of funds which normally remain KYC (know your customer)-compliant, purchases have dried up,” said a bullion dealer from Zaveri Bazaar.
In rupee terms, gold prices have declined by nearly seven per cent to ~29,160 per 10 gram since November 8, when the government announced demonetisation of high-value bills. However, gold price in London has declined similarly to trade currently at $1,204 an oz. Silver also followed the move to trade currently at ~41,765 a kg.
Jewellery sales, meanwhile, have come down as customers are awaiting import duty cut. Traders and jewellery consumers believe that the Narendra Modi government would cut the import duty on gold to appease jewellers who face harsh action from the income-tax department for selling ornaments with banned currency notes of ~500 and ~1,000 denominations. A school of thought also forecasts luring of customers through duty cut.
“Since the rates for the Goods and Services Tax (GST) have already been finalised for most tradable goods and services, import duty on gold needs to be rationalised to suit customers,” said a senior industry official.
The apex industry body India Bullion and Jewellers Association has demanded that the government keep tax at an affordable level under the GST regime.
Meanwhile, gold prices are likely to remain under pressure following the US President-elect Donald Trump’s support to the US Fed to raise interest rates in December. Analysts believe the hike in interest rates would support bullion stockists to sell gold and park funds in US treasury for high interest rates.