Poor rains may cast gloom on jewellery demand

Deficient West monsoon is likely to impact the gold jewellery sector, already reeling under a series of Government measures put in place to curb gold demand and bridge the burgeoning trade deficit.

The impact of lower demand for jewellery due to deficient rains will be more pronounced in the rural regions, according to analysts, who said that poor rains may result in lower income for farmers.

The agriculture sector accounts for some 14 per cent of the economy, with two-thirds of the country’s population depending on farming. Haresh Soni, Chairman, All India Gems and Jewellery Trade Federation, said:“We expect demand to come down in the rural regions that depend on farm income. However, we are hopeful that the monsoon may revive and remain for an extended period to make up for the losses.”

While the industry seems to have almost written off rural demand, the scenario in metros and urban areas appears to be no different. With the Government increasing the tax exemption limit by ₹50,000 to ₹2.5 lakh, most people prefer to invest in productive assets than buying gold, said analysts.

Investments in equity markets and mutual funds have turned out to be a better option after the recent run-up in the capital market. Traders said gold investors burnt their fingers last year, due to the volatility in prices, and the sharp fall in gold prices in the last few months have made them cautious. Moreover, gold prices in India are higher by about ₹4,000-₹5,000 per 10 gram compared with the international market due to the 10 per cent import duty and spot premium. Vimal Patel, Chairman and Managing Director, Suwarnsparsh Gems and Jewellery, said gold as an investment class has taken a back seat, with the stock market taking the centre stage in the last few months. Gold demand is expected to remain subdued in the near term, till festive fervour picks up, he said.

Restricting gold imports last year, the Government allowed banks to import gold only on condition that 20 per cent of the inward shipment would be exported before placing fresh orders.

In May, the Reserve Bank of India allowed seven star and premier houses to import gold in a bid to ease short supply. Gold imports in June reversed the declining trend of seven consecutive months, and grew 65 per cent to $3.12 billion, raising the concern of the Government.

The weak monsoon has pushed up fruit and vegetable prices leaving very little money in the hands of consumers to spend on luxury items such as jewellery, said analysts.

Many jewellers have discontinued their monthly saving scheme, which was a popular avenue for buying gold among the middle class. Making the schemes unattractive, the new Companies Act has restricted the interest paid on these schemes to 12 per cent, and capped the fund raised through this scheme to 25 per cent of the total networth of jewellery companies.

Chandresh Narayan, a mid-level manager in a private company, has decided not to buy gold after his jeweller abruptly withdrew the monthly saving scheme. In a lighter vein he said, “With tomato prices touching ₹100 a kg, I would rather make my wife happy by buying a kilo of tomato a day, than gifting her a gold necklace.”

High inflation has also taken a toll on the bullion industry, which is focusing on low cost jewellery with lower gold content. Traders said light-weight jewellery has become more popular with consumers. Though consumers tend to prefer conventional gold jewellery for weddings, middle and upper middle class customer are now switching over to jewellery with lower gold content.

“We are witnessing a consistent growth of 35-40 per cent in one gram jewellery sales, due to the design and buy back options available, as compared to conventional gold jewellery in the market,” said Patel, of Suwarnsparsh Gems and Jewellery.

Moreover, he added, given the spiralling labour and making cost, jewellers were increasingly finding it difficult to survive.

This is part of a series on how India Inc is responding to the monsoon situation

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