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Enhancing Gold Trade in India

Nirupama Soundararajan & Arindam Goswami Pahle India Foundation

A comprehensive gold policy for India must address four distinct segments of the gold ecosystem. These are regulatoryframework, infrastructural development, financialisation of gold, and growth of trade. As part of this four part series, we have laid out our recommendations on the first three. In this concluding part, we focusonhow the policy can help in enhancing gold trade in India.

Even though it is one of the top contributors to GDP among MSMEs in India, the gems and jewellery sector has ceased to be one of the favoured sectors in the country. So much so that the gems and jewellery was initially not under the Make in India programme and although it has been added it still continues to be one of the least prioritised sectors. The industry is often blamed for rising imports as gold and silver are chiefly imported, as domestic production is mostly negligible. The industry itself suffers from a whole range of issues such as procurement of raw material, financing options, lack of standardisation in price and quality, fall in the number of skilled labour, and to top it all fragmentation among stake holders. Despite of these challenges the industry continues to grow.

A few targeted steps either through the policy or as a precursor to the proposed gold policy can help organise the trade better. First, if on the one hand we stress on the importance of a gold policy, we must also recognise the importance of co-opting the principals of Make in India into the policy. By choice or by design, the gems and jewellery sector has not been acknowledged as a priority sector under Make in India. This is counter intuitive to everything that the government has done so far for the sector. Of many things that India manufactures domestically, there are but few products that truly unique to this country. Indian jewellery is one such product. This presents us with an opportunity to focus on our domestic jewellery manufacturing sector so that we can hone our potential and create a brand for ourselves in the global market.

Second, the art of crafting jewellery must become a more popular course with a better system of mapping apprentices to masters. Craftsmanship is what makes Indian jewellery special. The Indian gems and jewellery sector is one of the most diverse sectors in the country. Every part off India has its own specialty varying in designs. Meenakari from Rajasthan, Pachchikam from Gujrat, Temple jewellery of South India, and Kundan works of North India are only a few examples of the diversity in the jewellery industry in India. Unfortunately, jewellery making is a dying art now predominantly due to low income and bad working conditions. If the gold policy can find a way of improving this one aspect, we believe that the positive implications up the value chain will be exponential.

Third, exports are important, and jewellery exports are not easy. India might have lost out to China and Thailand for mass manufactured jewellery but India’s focus must be on exquisite, unique handcrafted pieces of superior workmanship. For this, B2C exports must be made easy. Under the current regime, the duty drawback procedures make it difficult for small exporters. In order to encourage exports, export procedures must be re-examined. Furthermore, India must undertake the task of comprehensively documenting the various styles of jewellery and craftsmanship of each region. This will enable India to apply for Geographic Indications (GI) for the many styles of jewellery that exist.

Fourth, cash transactions must be reduced. The industry is aware that cash transactions for purchase of gold is rampant. The long term solution to this is twofold. First, to increase invoicing and, second, to discourage cash transactions, even if accompanied by suitable KYC norms. This is also in line with India’s Digital India. If invoicing is to be encouraged, then the cost of purchase of gold through digital payments must not bear any additional cost or other forms of incentives must be provided. The industry must rally themselves to set guidelines to ensure that they too will systematically work towards an ecosystem in which they will no longer accept cash.

The gems and jewellery industry of India is approximately INR 544,000 crores in size and constitutes mainly of MSMEs. It contributes approximately to 7 per cent of the GDP and providing jobs to as many as 46 lac people across the value chain. The biggest challenge for that the sector is to battle the negative perception that has escalated since the recent scam and the prevalent mistrust. While no gold policy can directly help in improving perceptions, the policy can think ahead to lay down the fundamentals of the trade so that it can foster an ecosystem of trust. The task may seem herculean, but it is one that must be undertaken and succeeded at. No gold policy will be complete or even successful if those whose livelihoods are not involved in policymaking.

 

Disclaimer: Views are personal and not the views of the publisher.