The jewellery industry, which witnessed a steep fall in demand due to the income tax department’s crackdown on jewellers after demonetisation, is slowly limping back to normalcy with the majority of consumers opting for a digital mode of payment.
After an initial surge in jewellery sale just after the government’s note ban announcement, the demand for gold and gems dropped by more than 60% in November and December 2016 in comparison to what it was during the same period in 2015.
However, the All India Gem & Jewellery Trade Federation (GJF), which represents 250 jewellery associations, said demand began picking up in the past few weeks.
“Typically, sale of gold and jewellery is maximum during October to March. We saw a significant drop in sales in November and December (2016) but now the situation is stabilising and gradually we are getting back to normal,” GJF director Ashok Minawala said.
The gems and jewellery market is estimated to be worth ₹3.5 lakh crore with more than half the transactions historically cash-dependent. But in the last few weeks, close to 80% of the transactions have been done through plastic money.
“A clean up of the system was required and all we sought was to reduce the usage of cash. It is no secret that typically black money circulation has been high in this segment,” a senior government official said
Minawala said there was also a change in the reasons behind people purchasing jewellery as the purchasers no longer thought of gold as an asset class. “At present we have end users, who buy jewellery for end use and not just for investment,” he added.
Meanwhile, income tax officials said that they would continue to keep a close watch on jewellers across the country.
“We have intensified our searches and based on our internal reports, we will continue holding such search operations,” a senior income tax department official said.
The Directorate General of Central Excise Intelligence (DGCEI) is also screening information and data on sales and stocks from jewellers across the country.
According to official estimates, Indians buy about 300 tonnes of gold bars every year purely as an investment asset.
On an average, India imports 1,000 tonnes of gold each year, which widens the country’s current account deficit—the difference between inflow and outflow of foreign currency.