PAMP | Mines to Market

Jewellery SMEs/MSMEs face a gold shortage as agencies seek premiums, banks focus on large players. Small jewellery manufacturers be it for domestic supply or exports are facing an acute shortage of gold as nominated agencies seek huge premiums on small quantity outright bullion purchase and banks remained busy serving large customers. Normally small and medium enterprises (SMEs) and micro, small and medium enterprises (MSMEs) purchase gold in small quantity mostly in the rage of 200-500 grams to meet their daily needs. They mostly, purchase gold on an outright basis to covert the bullion into jewellery and sell them in both domestic as well as international markets. Ideally, they sell such jewellery made of low caratage of gold with purity ranging between 9 and 18 carats. But, nominated agencies approved by the government to make gold available for SMEs and MSMEs are denying outright supply of gold in small quantity. Sometimes, they charge very high premiums to make jewellery making uncompetitive for SMEs and MSMEs. Unfortunately, SMEs and MSMEs are struggling for survival in the post-Covid era when jewellery demand has slightly recovered with a sharp decline in gold prices. With their business remained shut for almost one year due to Covid-19-hit global lockdown, shortage of gold as jewellery raw material has worsened their business. While their fixed expenses like rent on office space, salary for workers on muster roll and interest on working capital; continued even during the lockdown despite having ‘nil’ business, they were hoping for a recovery in the ongoing wedding and festival season. “Gold prices have fallen sharply in the last few weeks. So, local refineries are deferring the outright sale of gold to customers amid expectations of a recovery in its prices in the coming days. So, gold availability for both domestic jewellery suppliers and exporters has become scarce. Nominated agencies ask for a massive premium to sell gold on an outright basis. Gold loan business, however, is running smoothly as the bullion price gets fixed on the day of final settlement,” said Mr Sabyasachi Ray, Executive Director, Gems and Jewellery Export Promotion Council (GJEPC). Mr Ray said that constricted gold supply is affecting the jewellery business for both domestic and exports. Data compiled by the GJEPC showed India’s gems and jewellery exports declined by 34.58 per cent in dollar term and 31.7 per cent in rupee term to US$ 21.88 billion (Rs 161,254.77 crore) for the 11 month period ending February 2021 as compared to US$33.45 billion (Rs 236,105.65 crore) reported during the same period the previous year. As far as banks are concerned, they are busy handling large clients with gold purchase order above 1kg. Banks have refused to entertain even credible SMEs and MSMEs despite having several years of business relations. Meanwhile, the gold loan business continued to operate without any problem as nominated agencies and banks earn interest in addition to the future fixation of the gold price which they perceive to remain high. Rajesh Khosla, former managing director of MMTC PAMP, the sole refinery to produce the benchmark London Bullion Markets Association (LBMA) - approved gold bars, said, “The nominated agency should also be able to provide a remedy. Do bear in mind that the government permitted GJEPC to form a nominated agency to assure requirements of gold for exporters was met.” Meanwhile, gold consumption for jewellery exporters is estimated at 60-70 tonnes with annual export revenue of around $35 billion. The domestic gold consumption is estimated at around 700 tonnes in the normal year. Gold prices have declined by 15 per cent in the last four weeks. Meanwhile, GJEPC has advised the government to form a coordination committee comprising members of nominated agencies, GJEPC, banks, Reserve Bank of India, Ministry of Finance and customs to formulate strategies as and when such gold supply crisis erupts. Courtesy By :- DILIP KUMAR JHA

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