India demonetisation drive to favour country’s big gold jewellery store chains –WGC
MUMBAI: India’s drive to bring transparency to bullion trading, along with the rise of branded gold jewellery, could help major retailers raise their share of the world’s second-biggest gold market to 40 per cent by 2020, the World Gold Council (WGC) said.
Somasundaram PR, managing director of the WGC’s Indian operations, said on Tuesday Prime Minister Narendra Modi’s move to scrap 500 and 1,000 rupee banknotes - a ‘demonetisation’ crackdown on corruption and tax evasion - will boost larger jewellery retailers’ market share from 30 per cent in 2015.
“The issue the industry is facing today is lack of transparency,” said Somasundaram, speaking in an interview as the WGC published a report on the Indian gold trade.
“This is addressed by demonetisation... Consumers will be forced to pay by cheque or digital payments for large transactions.”
Known as ‘organised retailers’, firms like Titan Co Ltd, P C Jeweller Ltd and Gitanjali Gems Ltd have seen their share of a traditionally fragmented market rocket from just 5 per cent in 2000 as young consumers switched to branded jewellery.
Many of India’s 400,000 jewellers have traditionally sold gold in cash transactions, with small retailers often skipping written documentation in an attempt to avoid paying taxes while people with wealth not recorded in accounting books preferred to buy without invoices or receipts.
More than 70 per cent of the country’s gold sales have been in cash up to now.
Those transactions, along with a 10 per cent import duty on gold imposed in recent years, have boosted smuggling, Somasundaram said.
Prime Minister’s Modi’s drastic move – withdrawing bills equivalent to 86 per cent of the value of cash in circulation – will help curb smuggling, the WGC said in its report. Smugglers offered a discount as high as US$100 an ounce in 2016, disrupting the gold supply business.
“The grey market will disappear due to cashless transactions,” Somasundaram said. “It will help both consumers and industry in long run.”