It’s time for gold rush but import duty hike is posing some concerns for gold retailers
Festivities are in the air and most people will soon be going on a buying spree. Gold always tops the priority lists of people, especially during Dhanteras and Diwali. However, the gold retailers are a bit edgy right now due to the government’s move of hiking the import duty on the yellow metal.
Neil Banerjee October 11, 2022
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It’s that time of the year again when people throw their worries away and revel in the magic of the festive season. People go all out and celebrate each occasion with great zest and fervour. And this festive spirit is reflected in the roaring sales of jewellery – of both gold and silver.
India always witnesses record sales of jewellery during its festivals. However, this time, the Indian Government’s recent decision to hike the import duty on gold could have a negative effect on its sales. This move by the government has unleashed a wave of concern among jewellery retailers and has made their plans go awry.
“The jewellery industry will be significantly affected by the government’s decision to increase the import tariff on gold to 15 per cent, which includes the agriculture infrastructure development cess (AIDC) of 2.5 per cent. A marked increase in gold smuggling to avoid paying taxes is possible as a result of this hike in the import duties. This could result in a significant loss of tax revenue for the government as well. Retailers are requesting that the government reconsider its decision to raise the duties on gold imports,” says Dishi Somani, founder of DishiS Jewels.
On the day of Dhanteras, India witnesses one of its highest peaks in annual gold sales. Gold investments on this day bring good fortune, money and health, according to the Hindu scriptures. This hike could create an uncertain situation for the customers, who might have to pay premium prices for gold-based jewellery items now.
“We are hopeful that this hike won’t have much effect on the sales of gold during Dhanteras. Buying gold on Dhanteras brings good luck and prosperity which is another reason for why we Indians are so drawn towards it,” Abhishekh Kajaria, owner of Avama Jewellers in Kolkata points out.
Religious sentiments must be taken into consideration but the business aspect of this can’t be ignored either. This hike is going to hurt both the retailers as well as the customers. However, it will definitely take a bigger toll on the retailers.
“We are urging the government to revert this hike. It’s the festive season, a time when we are able to earn the most. Some jewellery retailers are importing gold under the guise of platinum now, while some are stocking up on gold and are preparing to raise gold rates during the peak time,” Naveen Rudrakash, owner of Rudrakash jewellers in Ranchi tells us.
The jewellery retailers are hopeful that there will be some relief from the government’s side. In the meantime, they are focusing on and getting ready to display their Durga Puja and Diwali collections to woo their customers.
Innovation is key
Exotic designs are being created and exquisite concepts are being brought to life to attract customers. The jewellery houses all over the country are doing their utmost to grab eyeballs by working on creative and innovative designs. Competition among the jewellery stores is cutthroat during the festive season with each one trying to outdo the other. The clash and the competition bring out some fascinating designs which can be viewed and admired at this time of the year.
“We have to regularly keep coming up with new and creative designs to attract customers. We are currently selling through our own website, dishisjewels.com and also through Ajio and Nykaa. We are launching a new collection of mangalsutra pendants and navratna earrings, pendants and rings this season,” Somani informs us.
“We have worked on multiple aspects to gain more customers. We’ve introduced referrals, created video ads for social media platforms to generate buzz, and we have also got influencers onboard to promote our business. We are also giving out big discounts to our customers while bringing out our new range of collections for this festive season,” says Kajaria.
The festive fever kicks off with Durga Puja in West Bengal. Kolkata is getting revamped and decorated as Maa Kaali is all set to arrive a bit early this year. Bengalis are excited; many of whom have already begun their spending sprees.
“Kolkata is preparing a bucket list. Durga Pujo is the most special and auspicious festival for all Bengalis. On the occasion of Durga Pujo, we have launched our exclusive pujo collection. We are witnessing a heavy footfall in our store and hope that this continues till the festive season remains,” says Joydeep Guha of Guha Gems and Jewellery in Kolkata.
The craze for gold
Gold has always enjoyed a special place in our historical books and scriptures. But what drives this madness for gold?
In today’s world, the key driver behind this craze is something called an ‘inflation hedge’.
An inflation hedge is a kind of investment that you make which will maintain or increase in value if there is a decrease in the purchasing power of a currency. Over the long run, gold has done worse than the stock market. But it’s seen as a reliable investment when times are uncertain. Furthermore, gold has come to be called an inflation hedge by some.
“Part of the inflation hedge story held water from 2020 to 2022, when gold topped $2,000 per ounce for the first time in history and subsequently hit an all-time high of $2,074.60 per ounce in March 2022. The price of gold has dropped by 18 per cent in the previous four months from its all-time high, putting it on the verge of a bear market just as it should be maintaining its worth. Here gold’s supposed inflation-fighting abilities come up short. Furthermore, there is evidence to imply that gold’s reputation as an inflation hedge has been greatly overblown, even by historical standards,” Somani elaborates.
However, this hasn’t put a break on the high gold demand in India and the yellow metal remains one of the most sought-after possessions in the country, with its demand standing at 797.30 tonnes in 2021 and expected to be in the range of 800-850 tonnes in 2022.
According to a report by the Gems and Jewellery Export Promotion Council (GJEPC), In FY22, cut and polished diamonds accounted for the highest share of exports (62.4 per cent), followed by gold jewellery (23.57 per cent) and silver jewellery (6.95 per cent).
A mixed response
Retailers are worried and are anticipating different outcomes due to the recent hike in the import duty on gold by the government. The gems and jewellery export sector of India seems to be taking precautionary measures and they believe that there is nothing to worry about for now.
“There is no direct response to the hike as such, but we are seeing that the demand has gone a bit down for some particular products. However, overall, there has been no effect at the consumer level; the purchases are going on as usual,” says Dinesh Navadia, Regional Committee Member, Gems and Jewellery Export Promotion Council (GJEPC).
The hike seems to have evoked a mixed response: that of hope and concern. While the export council seems to be hopeful, the retailers are a bit worried. The council is in fact citing various factors that could make this hike a beneficial one for the jewellery business and its retailers.
“The hike in the MRP will actually enhance the attraction that the consumers have for gold as their belief in it as an investment opportunity will receive a boost. Hence, they will buy more gold. Also, consumers will start buying gold in advance for the marriage season, thinking that the rates might go even higher further on,” Navadia asserts.
The retailers have their own concerns and methods to handle situations like these. Sometimes, to safeguard profits and to not incur losses, selling it at premium prices is the only option.
“The retailers plan to introduce more 14-karat, 18-karat and diamond-studded light weight jewellery to drive demand. Generally, jewellery in India is made of 22-karat gold. Retail jewellers are also reworking their strategies to attract more customers,” Kajaria points out.
“The unexpected drop in gold prices has been seen by the dealers and retailers of gold jewellery as a signal to store up on their gold supplies in advance of the festive season. Jewellers are expected to charge a premium for their gold pieces during the festive season. This could get them out of the predicament that the increased tax on gold imports had put them in earlier this year,” says Somani.
The jewellery retailers have urged the government to either lift the hike or postpone it for a later time. The government is yet to respond to their request. The retailers certainly have a tough task at hand now. Their businesses need to do good. This festive season holds more importance for them as it is also the first open festive season after a series of lockdowns during the pandemic. This gives a lot of hope to the jewellery sellers, despite some lingering doubts.
“Shop owners are trying to reach their goals by attracting more customers. Their only expectation is to make huge sales and have a good footfall of customers at their stores. During the upcoming festive month, these shop owners will try to attract customers by giving out huge offers and discounts. Bringing out new collections will also help them in this regard. Offering free gifts with every purchase is also a good way of attracting customers,” Kajaria tells us.
“We hope that the new rules and the hiked custom duty won’t affect the business. We expect the industry to grow this year, which will be beneficial for anyone who wants to invest in real jewellery,” Somani adds. The jewellery bodies are also keeping tabs on the situation. The export council is trying to provide all the help that they can by facilitating the gold acquisition process for the traders and manufacturers while also acting as a medium between the government and the traders by taking up the issues that are of mutual concern to all the parties involved.
“The GJEPC is working hard towards making gold easily available to the manufacturers and exporters. It constantly brings the burning issues of the trade to the government’s attention and tries to work out an amicable solution to all our problems. The GJEPC has also established an e-commerce platform for the retailers which will empower them to export directly to consumers across the world,” says Navadia.
There is a lot of hope amongst the gold retailers, and they wholeheartedly believe that they will be able to surmount these obstacles. They can’t miss the chance to tap into the festive zeal of this season and hence, are leaving no stone unturned in their quest to attract the maximum number of customers to their stores and outlets. The market experts too are keeping their fingers crossed, since unpredictability can’t be ruled out. Only time will tell if the golden rays of this precious metal were able to pierce the impending darkness and shine through, bringing joy and prosperity to one and all.