India’s Jewelers Become Frontline in Gold Battle
The elegant, marble-floored showroom of Zaveri & Co – an upmarket jewelry shop in the Indian city of Ahmedabad – houses cases of shiny, filigree gold necklaces, bangles, rings and earrings: symbols of status and security for India's increasingly affluent population.
Today, the shop – and thousands like it across India – are a battleground, between India's gold hungry public and a government determined to squelch their gold buying to prop up a weakening currency.
On a recent afternoon, families took advantage of the sharp drop in global gold prices – it briefly hit a three-year low on Friday – to acquire new ornaments.
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Among the buyers was F.T. Kanpurwala, an environmental engineer, who sat beside his wife and 18-year-old daughter, as they scrutinized delicate bangles. Mr Kanpurwala said the family buys gold jewelry regularly – at least quarterly – especially when prices dip.
"Indians have a tradition of a deep attraction to gold," he says. "We are buying often. Whenever prices go down, we use it as a chance to buy. It's a desire for ornaments, and it's an investment. It's a family preoccupation."
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Despite a steady flow of trade from like-minded customers, the shop's 65-year-old owner, Zaverilal Vrijbhai Mandalia, is worried.
P. Chidambaram, India's finance minister, has publicly and repeatedly blamed the hunger for gold as the main cause of the country's ballooning current account deficit, which has put heavy pressure on the rupee.
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The currency tumbled through the important level of Rs60 to the dollar, hitting a record low of Rs60.70 last week. Mr Chidambaram has appealed to Indians to stop buying gold to help the currency and the economy, but so far ruled out any outright import ban.
Instead the Congress-led government is squeezing gold imports through other measures, which jewelers complain are already hurting their business. Like many gold traders, Mr Mandalia, a third generation jeweler widely known as Zaveribhai – or 'Jeweler-brother', fears India is being propelled back to the bad old days of goldsmuggling gangsters, whose exploits were a staple of Hindi movies.
"We are very much afraid," he said. "Even if the government stops imports, the people must buy, and they will buy – from anywhere."
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Previous Indian government efforts to battle the public's compulsion to buy gold have been largely unsuccessful.
During the socialist era, private citizens could not own gold bars or coins, and imports were banned, rules that created vast underground smuggling rings. But with the liberalization of the early 1990s, New Delhi allowed legal gold imports. Like the demand for other consumer goods such as motorcycles, televisions and overseas trips, the national appetite for gold – with its dual attraction as both a showy status symbol and security in turbulent times – has also increased.
Gold imports increased 80 percent between 2002 and 2011, when they peaked at 969 tons, before weakening slightly to 860 tons in 2012. Gold accounted for 11.5 percent of total imports in value terms during India's 2011-12 financial year, up from just 7 percent in 2008-09.
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"With money coming into the hands of the middle class, the propensity to consume has gone up," said Naishadh Parikh, an Ahmedabad-based businessman. Alongside family businesses such as Zaveri, new corporate-owned jewelry retail chains, such as the Tata group's Tanishiq or the Bombay Stock Exchange-listed Gitanjali Gems, and PC Jeweler, have also spread nationally, advertising heavily on television.
In this climate, Indians who had watched gold prices soar over the past three years took April's sharp tumble in price as a buying opportunity. Gold imports in April and May surged to about 300 tons, about a third of the quantity imported in the whole of 2012.
But with the rupee weakening, Mr Chidambaram is targeting Indians' hunger for gold. Since January 2012, New Delhi has raised import taxes on the precious metal four times, taking it from 2 percent to 8 percent. This month, the Reserve Bank of India banned banks from providing credit for jewelry stores, which can now buy gold only on a cash basis. The institutions were also told they could only import gold on a cash basis, except for export-oriented jewelry-making.
Mr Zaveri says the measures are already hurting – especially large gold retail chains.
The All India Gems and Jewelry Trade Federation, which this week asked its members to voluntarily suspend the sale of gold coins and bars, complains that the measures have created a "huge short supply of gold," and claim they will push consumers back to illegal suppliers: "the smugglers and mafia."
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Indian newspapers are breathlessly reporting on gold smugglers' techniques, and new seizures of bullion. It will certainly take more than Mr Chidambaram's hectoring, or administrative controls, to change the mindset – and consumption patterns – of young women such as Bhumi Thakkar, 25, and her sister-in-law, Purvi Thakkar, 22.
At her marriage recently, Purvi received gold rings, bangles, earrings, necklaces and other gold ornaments cumulatively weighing about 500 grams. But as gold prices tumbled to a three-year low this week, she accompanied Bhumi – who wore three gold rings on one hand and a large gold pendant of the Hindu monkey god Hanuman on her neck – to buy a new gold ring.
"We have to buy gold and never stop," says Bhumi. "The price goes up and up and up. The current fall is only temporary. It's a good chance for buying."