Scrapping high-value currency notes is the last straw for jewellery firms

This year has been a washout for jewellery companies due to a sharp increase in the price of gold and a number of measures taken by the government to disgorge black money. Scrapping high-value currency notes was the last straw. 

The decline set in this February, when people stayed away from buying gold on expectation of a duty cut. The Budget imposed an excise duty on gold jewellery and this was followed by a 42-day strike by jewellers that crippled demand. The government also toughened the requirement for disclosing PAN numbers when buying jewellery worth more than Rs 2 lakh. 

Despite a 21 per cent rise in gold prices in 2016 (15 per cent in dollar terms) sales and profits of jewellery manufacturers and retailers have remained flat to negative. Titan, the industry leader, reported a 32 per cent decline in sales in July-September. High bullion prices and revaluation of inventories at higher prices helped jewellery companies pull through.

Following robust Diwali sales, jewellers were expecting a sparkling wedding season as gold prices had stabilised. But the sentiment was reversed on November 8, when the government cancelled the legal validity of Rs 500 and Rs 1,000 currency notes.

“The year is going to be a washout for the jewellery sector,” said Mehul Choksi, chairman and managing director, Gitanjali Gems, one of India’s largest branded jewellery manufacturers and retailers.

The World Gold Council (WGC) reported a 29.14 per cent fall in gold demand at 441.20 tonnes in January-September from 622.6 tonnes in the corresponding period last year. Somasundaram P R, managing director of the WGC, had estimated demand for gold at 210 tonnes in October-December, which could take the annual demand to 650-750 tonnes. The currency move is likely to affect this projection.

“With the demonetisation, common consumers, who contribute around 60 per cent of jewellery sales, are affected,” said an industry executive.

“Consumers will lose faith in currency and repose faith in bullion and ornaments,” said Rajesh Mehta, managing director of Rajesh Exports.