Jewellers are likely to stop the sale of bullion and coins to consumers and corporate bodies with to support the Government's efforts to bring down the Current Account Deficit (CAD).

CAD is the difference between the outflow and inflow of foreign currency and is said to have touched a record high of 6.7 per cent during the October-December quarter. The Reserve Bank of India had also noted that the trade deficit had widened during April-May due to a huge rise in festival-related gold imports.

CAD is one of the reasons behind the weakening of the rupee that fell to an all-time low .

Due to this increase in CAD, the Government suspended the sale of gold bars and coins, a move that is likely to continue till the deficit is reduced to a significant extent.

Small and large jewellers, and major jewellery retail chains have been requested to stop sales and taking orders of coins and gold bars. Besides this, the RBI too has put restrictions on banks on imports of gold. Import duty was hiked to 8 per cent.

The ban is expected to affect the retailers minimally, mainly because the profit margins on gold bars and coins are lower than that on the sales of actual gold jewellery.

The demand for gold jewellery has remained constant for few years now. But investment demand has increased several times. Indian customers purchase gold coins and bars as a means of investment. With the ban coming into effect, customers may find it difficult to get hold of gold coins, especially during the festive seasons when investment demand usually reaches its peak.

However the ban has not yet come into full force as yet mainly because retailers still have a few pending customer orders to fulfil. It is expected to have a major impact in the reduction of CAD in about six months.

(Vidya is an Economics student from Stella Maris College, Chennai.)

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