In an effort to contain the ballooning current account deficit the Government has tried to discourage gold imports by hiking duty. The Union Finance Minister P. Chidambaram has himself appealed to the public to resist the temptation to buy gold.

Besides having an emotional attachment for the yellow metal, Indian investors are also attracted to gold for its easy liquidity, its value as a hedge against inflation and as security for raising loans.

But the series of steps taken by the Centre against gold consumption has led to a sharp decline in jewellery stocks, many of which have fallen sharply since January and are currently trading close to their 52-week lows.

Thangamayil Jewellery Ltd’s share closed at Rs 162.25 in the NSE on Friday and is hovering around its 52-week low of Rs 159. The stock, in line with the industry trend, has witnessed a sharp fall from its 52-week high of Rs 351.

In an interview to Business Line, Ba. Ramesh, Joint Managing Director, Thangamayil Jewellery Ltd, Madurai, denies that gold consumption has led to high CAD. But the tough market has led TJL to moderate its expansion plans. Excerpts from the interview:

The Government has urged people to moderate gold consumption to reduce CAD. How does the industry view this?

In the absence of social security measures from the Government, gold will be used as a security to meet contingencies. Besides, there is great emotional attachment for gold in India and it is considered auspicious to own it.

Isn’t gold an unproductive investment?

Appreciation in gold prices can act as a hedge against inflation. The yellow metal has high liquidity and offers social security.

To what extent have the Government’s efforts to reduce gold purchase affected the industry?

The industry is disturbed by the frequent circulars from the RBI and our sales have also taken a mild jolt. But in the long term we are confident of the industry’s recovery.

How can the industry help the Government in moderating gold consumption and thus save forex?

We have supported the Government by discontinuing the sale of gold coins. We are concentrating solely on the sale of jewellery, which would definitely contribute towards moderation of gold consumption as envisaged by the Government. Further, the All India Gems and Jewellery Trade Federation (www.gjf.in) has suggested several innovative measures for the deployment of idle gold.

What was the reason for your reporting a decline in profit despite a 20 per cent jump in sales in the June quarter this year?

The decline was on account of adjustment of deferred revenue expenditure of the advertisement and marketing expenses. Further, a price correction in Q1 led to a slight inventory loss. In the current year we are targeting sales of Rs 1,400 crore.

How many new showrooms do you plan to open in the current fiscal?

We have opened five showrooms taking the total to 31 as of now. In view of the current Government policies, we have decided to go slow with our expansion programme in Q4 of the current financial year.

Has your business plan undergone any change because of the Government policies?

We had planned to add 15 stores but due to the Government policies and actions, we have reduced the number of new showroom launches in the current financial year.

Do you expect a fall in sales during the Diwali season compared to the previous year?

Not much as the scenario is gradually improving compared to earlier months and as the monsoon has been good in South India. A better power situation would also lead to higher agricultural production, pushing up rural household incomes that in turn would make people invest in gold.

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