At a time when gold prices have reached the stratosphere (over ₹50,000 per 10 grams) — parts of the country are still locked down and economic activity is just about attempting to limp back — one luxury item whose demand has taken a big beating is gold jewellery.

With appetite for the yellow metal substantially reduced because of unemployment, loss of income and financial distress, there is a sharp contraction in physical demand for gold jewellery. As a result of weak demand, even monthly gold imports into the country has dwindled to low numbers in the last six months.

The worst-hit are obviously the gold jewellers who carry huge inventory of high-value gold ornaments. With sale transactions few and far in between, their cash flow is affected. If global prices correct downward for any reason, the inventory value risks a decline. It is in this context that some leading jewellers have urged the government to bring uniform gold pricing across the country, according to media reports.

Traditionally, physical demand for gold jewellery peaks during the festival season in October/ November (marked by Navrathri and Diwali). It coincides with the harvest of Kharif season crops which puts money in the hands of the rural population.

Following poor business performance since March (no large-scale weddings, no big celebrations, no festivities), jewellers see a ray of hope in the upcoming festival season and do not wish to miss out on the seasonal marketing opportunity. At the same time , inter-se competition among jewellers results in many of them offering price discounts to woo customers, maximise sales and reduce inventory burden.

Leading jewellers have now reportedly urged the government to fix a uniform national price for gold, which in turn means no jeweller should offer a discount. This demand is patently unfair and anti-competition.

Grant of discount to customers is a business decision of each jeweller depending on his appetite for trade turnover, cash flow exigencies, customer relations, and so on. By demanding that the price of gold be uniformly fixed across the country, the proponents are seeking government help to thwart inter-se competition.

It is no part of the government’s job to fix a uniform price of gold, whatever justification any stakeholder may like to proffer. If the government succumbed to this demand, it would be a form of cartelisation with official government support. “If this is not cartelisation, what is?”questioned a reputed jeweller who wants retail jewellery trade to be free.

Many jewellers had purchased gold at much lower prices than at present. They can afford to price their products lower than the current gold price parity. Eventually, consumers will benefit.

The physical market is selling gold jewellery at a discount to current gold import parity. This is not unusual at all. We have seen discounts and premia in the market depending on tightness or otherwise of gold availability. Any attempt to choke the jewellery market with uniform pricing will be distortive and anti-consumer. New Delhi should not succumb to lobby pressure.

(The writer is a policy commentator and commodities market specialist. Views are personal.)

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