GST makes for more cash deals, consolidation in jewellery sector

Mumbai: Imposition of the Goods & Service Tax (GST) has changed the way gold was traded in India. It has helped large gold chains to grow, the industry is consolidating and small jewellers have opted for several other ways to retain customers and business.

Challenges exist, as demand will be impacted due to high prices, jewellers’ finances are under pressure and cost is rising. Hallmarking will lead to churning of inventory.

The immediate impact of GST was seen on the gold trade in the form of a rise in unofficial or smuggled gold import. According to GFMS' (a metal research unit of Thomson Reuters) Gold Survey, “Our estimate is that 134.5 tonnes were smuggled into the country last year, 10 tonnes higher than 2016.”

Usually, GST has resulted in a fall in cash transactions. The increase is also surprising because trade has gradually been shifting to digital and card payment. Considering the official import of 880 tonnes, India is back to 1,000 tonnes annual gold import. However of the 880 tonnes, deducting for export, net official import for the domestic market was 663 tonnes. Last year, the government announced several regulatory measures for the jewellery trade. A ban on cash transaction beyond ~200,000 had jewellers starting to offer lightweight jewellery, studded with precious stones to make them look heavy.

Later, consumers and jewellers found a way out. According to a GFMS survey, customers will pay cash for the whole amount and bargain on the gold price to get a discount of 0.7 to 1 per cent. The trader will show he exchanged new jewellery for old. Jewellers will give a bill for making charges and pay GST on the job work. And, use the cash from the customer to buy gold from the unofficial market. The unofficial gold will be melted to show it as melting of old jewellery collected from the customer.

Another impact was seen in terms of large retail chains gaining a major chunk of the market as the GST impact started stabilising. The estimates is that nearly 25 per cent of retail business has shifted to big chains. Ahammed MP, chairman, Malabar Gold & Diamonds, said: “National and regional chains have been able to clock better sales, thanks to effective marketing strategy, insight-driven sourcing and inventory management, beside quality customer service.”

Large chains are also having access to banking facilities like gold metal loans at around 3.5 per cent interest and monthly gold deposits against future sales, which smaller jewellers find difficult. The rising market share has also resulted in consolidation in the industry.

Ahammed says consolidation is happening in favour of organised players, having picked up after GST. Rising market share has also gave large chains some additional bargaining power and smaller jewellery makers and even artisans are joining or merging with big chains.

Several smaller jewellers have started complying with the new regulatory regime and the World Gold Council's office here says 75 per cent of the industry is now GST-compliant. Somasundaram P R, the India head of the WGC, does not call the process as consolidation but says the market “will become competitive on the one hand and entry barriers could rise for individual players. We could see stronger cooperation among smaller players. Competition will also be more about addressing consumer preferences of the millennials, integrity of product, price and source of supply, innovation, use of technology and value addition - with reduced emphasis on arbitrating tax and trade practices. The market is very large, with different regional preferences.”

     

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.