Jewellers offer nearly 1% off for online transfer of funds

Lack of demand hits business hard, jewellers fear liquidity problem in future

With demonetisation of high-denomination currency notes and searches by the Income Tax authorities keeping customers at bay, jewellers have adopted various methods to keep their sales momentum going.

To lure customers, jewellers had not only accepted 500-rupee and 1,000-rupee notes for two days after the ban, but had also facilitated personal delivery of ornaments to customers with large orders. And now they have started offering a discount of Rs 280 per 10 grams on the value of gold ornaments to customers who transfer money online through real time gross settlement system (RTGS) or national electronic fund transfer (NEFT). This discount works out to nearly one per cent of the value of standard gold in the market.

Barring the first few days following November 8, the day when Prime Minister Narendra Modi denometised 500- and 1,000-rupee currency notes, jewellers started encouraging direct fund transfer into their accounts from customers. Apart from online transfer of funds, they also accepted cheques for the jewellery they sold.

“In order to encourage sales through electronic transfer of money, jewellers offer a discount of Rs 280 per 10 grams on the value of gold ornaments. This means, customers can avail standard gold at a price of Rs 29,400 per 10 grams when its real market value stands at Rs 29,680 per 10 grams,” 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 growing uncertainty has reduced bullion demand. According to Prithviraj Kothari, Managing Director, RiddiSiddhi Bullions, jewellers are abstaining from fresh purchases probably on expectations of a 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 problems in the medium to long term,” said Kothari.

Weak demand has reflected on gold prices also. Prices in both Indian rupee and dollar terms have declined sharply over the past 10 days, due to the disappearance of black money from the system. “Normally, consumers used to buy bullion and gold with surplus money and preferred to avoid actual bills. But now, since jewellers demand cheque payment or online transfer of funds which normally remain KYC (know your customers)–compliant, purchases have dried up,” said a bullion dealer from Zaveri Bazaar.

In rupee terms, gold prices have shed nearly seven per cent to trade currently at Rs 29,160 per 10 grams since the day the demonetisation was announced. During this time, the price of the metal in London declined by a similar margin to trade currently at $1,204 an ounce. Silver followed suit and currently trades at Rs 41,765 a kg.

Jewellery sales, meanwhile, have dwindled as customers await a cut in import duty. Traders and jewellery consumers believe the Modi government will cut the import duty on gold in order to appease jewellers who face action from the tax department for selling ornaments with banned currency notes. A school of thought also forecasts the return of customers if a duty cut is put in place.

“Since rates for the Goods and Services Tax (GST) have already been finalised for most of tradable goods and services, import duty on gold needs to be rationalised to suit customers,” said a senior industry official.

The apex industry body Indian Bullion and Jewellers Association (IBJA) has recommended the government to keep tax levy 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 that the hike in interest rate would support bullion stokists to sell gold and park funds in US treasury for high interest rates.