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The Kerala Jewellers Federation has put in place a new mechanism, called Kerala Gold Board Rate, to determine the daily retail price. The move is an upshot of spurt in smuggling which has spawned a grey market for retail gold.
This rate, which will be higher than the market rate determined by a section of jewellers, will depend on the price at which banks supply bullion to jewellers.
The board rate, which has come into effect from November 15, is supported by brands such as Malabar, Kalyan and Alukkas.
The “white market” will sell only at the new rate that will be announced every day. “We have devised the new ‘official and legal’ pricing mechanism in view of the thriving grey market,” M.P. Ahamed, General Secretary of KJF and Chairman of the Malabar Gold and Diamonds, told Business Line .
“Without this, legal gold retailing will go out of business soon because of the unequal competition form a parallel market that can afford to sell jewellery at cheaper rates.”
He said that more than three-fourths of the jewellers supported the new pricing mechanism.
Kerala, which has a large number of reputed brands, accounts for a sizeable chunk of the country’s gold market, including manufacturing, retailing and exports.
Stiff restrictions imposed on gold imports by the RBI and the Government, the 15 per cent import duty and the condition that importers should re-export as finished products at least one fifth of the quantity they import have all hit them hard, Ahamed said. The restrictions have given a fillip to gold smuggling, which had almost vanished post-1991 import liberalisation.
Ahamed said that as shown by the series of seizures of gold smuggled in from abroad at various airports, there was a spurt in smuggling, which directly hit the ‘legal, authorised’ gold business. Since the grey market could source gold cheaper from smugglers (the price difference between smuggled gold and “official” gold is roughly Rs 4 lakh a kg), the ‘white market’ price was always higher.
“Because of this price difference, the legal business has shrunken by more than a third,” Ahamed said.
He said that before the restrictions the average monthly import of gold had been around 60 tonnes, but it had now dropped to a little over three tonnes a month. However, there was no marked fall in the domestic consumption which he said was rooted in tradition, culture and religious beliefs.
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