In social psychology, moral disengagement is defined as the process of justifying to oneself the legitimacy of a decision or action, with prior knowledge of the said decision or action being questionable or unethical.

The story of strong resistance by jewellery associations and some of the hallmarking agencies to stop the record keeping of Hallmarking Unique Identity (HUID) is one that strongly relates to this moral disengagement.

Bureau of Indian Standards (BIS) Hallmarking was launched in 2001 as a voluntary scheme, with the objective of protecting the consumers against adulteration and justifying an obligatory responsibility of the manufacturers to maintain legal standards of fineness of precious metals in India.

Under this scheme, BIS-certified jewellers can get their jewellery hallmarked from any of the BIS-recognised Assaying and Hallmarking Centres (AHMCs). This was the golden goose opportunity for jewellers to expand their footprint across regions. Those unwilling to adapt to new regulations, restricted themselves to staying hyperlocal, eventually started witnessing a drop in footprint, and finally resorted to selling imitation jewellery or ended up becoming local moneylenders.

If there was one that was oversold than the jewellery itself was ‘trust’. Proof as they say is in the pudding, ask non-banking financial companies (NBFCs) and banks giving loans against jewellery. Most, they say, end up as 85 per cent gold while the lending was on 91.6 per cent.

Voluntary hallmarking was a fairly straightforward procedure, which required minimal documentation.

However, the introduction of HUID made it possible to validate the hallmarking process. By generating a unique identification number for each article of jewellery, and obligatory submission of reported sampling and testing for purity, complete transparency was achieved in the system.

This facilitated the creation of a record of the transfer of ownership of jewellery articles, as well as, verification by the end-use customer regarding the authenticity of each unit using the HUID portal even before the purchase.

While large jewellers celebrated the announcement of generating HUIDs on all hallmarked jewellery with literal ribbon-cutting ceremonies on successful process completion, there was internal conflict brewing within the community, specifically jewellers who were opposed to the idea of a record of the HUID being created at stock transfer.

The formal justification provided was the slow BIS servers, which had increased the overall delay in the process. Furthermore, some AHMCs colluded with the jewellers to deliver evidence of delay in the process of data upload on the servers. Such lobbying resulted in the judgment being passed in favour of the jewellers, and the implementation of HUIDs was further relaxed to November 30, 2021, and with no mandate to record the stock transfer.

Exploiting loopholes

Market intelligence suggests that hardly one-third of the stock that flows into AHMCs gets hallmarked using HUID. The remaining stock is returned to the jeweller with four-mark and the HUIDs are shared as and when they are generated by the system. A large volume of HUIDs are, therefore, spawned in a single day, bypassing the BIS portal and without any issue of vouchers or GST invoices.

The AHMCs working hand-in-glove with jewellers and compromise on the process. Sometimes no quality checks are performed by these AHMCs for generating unaccounted identification numbers for a small fee of ₹25-30. This results in duplication of HUIDs across jewellery articles. The system is further exploited by producing HUIDs for a small sample of jewellery articles, and simultaneously hallmarking all the articles using the old four logo hallmarking procedure, resulting in substantial reduction in delivery time.

In some cases, fabricated data on HUID is created by the hallmarking agency without even receiving the jewellery articles and uploading doctored X-Ray Fluorescence (XRF) reports. The jeweller then gets in touch with the hallmarking agency, and the articles are marked, either by using the old system or HUID, but without any examination or test of purity.

These malpractices are generally indulged in after the end of official working hours, as the chances of an inspection being conducted by the BIS officers are infinitesimally small. Even in the scenario where a fake HUID is detected at the jeweller’s shop, there is no way of tracing whether the falsification was done by the manufacturer or the hallmarking agency, due to the absence of record transfer details.

If you are to ask why continue four-mark, this is a mark of having old stock, making it all the more convenient to route smuggled gold into the system.

Exploitation of such loopholes in the system illustrate the tension between public welfare and personal gain. The end-use customer has failed to develop a sense of trust as a consequence of moral disengagement by the jewellers lobbying against HUID marking and third-party hallmarking.

These are going to be in direct conflict with the voice of the end-use customers, who would in due course turn to trusted retailers, completely neglecting the majority of the market. Therefore, it is in the best interest of sellers in an aggressively competitive gold jewellery market to adhere to the spirit of HUID implementation, instead of observing its mere obedience.

The way forward

Jewellers over generations have managed to run a profitable enterprise across India. However, when it comes to building trust, perhaps the younger lot amongst them will have to lead the way in technology adoption to create a similar impact and sustain the legacy.

A deliberate effort needs to be made to control counterfeit HUID hallmarking by only considering trusted AHMCs and asking for documentation on such transactions. Contradictory to the current market sentiment, vigilant HUID enactment will facilitate easier tracking of unverified HUIDs by BIS, consumers, and jewellers alike. The key for growth in the gold jewellery business is customer retention, which is only possible if manufacturers and sellers of such articles are able to embrace and abide by such reforms.

If India is to pursue membership of the International Hallmarking Convention, the interests of the end-use customer of gold jewellery need to be placed at the forefront of such policy implementation.

Sahay is Chairperson, and Nambiath is Head, India Gold Policy Centre, IIM Ahmedabad