One Year of Demonetization: How Tough It Has Been for the Gold Industry The industry is observing Indians moving away from the bullion market

On November 9, 2016, Ishu Datwani's premium jewellery store Anmol in Bandra West's Turner Area looked like a haunted house with no customers around. This was a rather unusual view as Indians love buying gold and it was the peak of wedding season. But the scenes were same at most of the jewellery shops in India for the next few weeks – all due credits to demonetization.

When demonetization was introduced last year, the gems and jewellery (G&J) industry was one of the sectors that came tumbling down as it was a cash-driven sector and that too the peak season for the industry.

A year later, Entrepreneur India sought to find out from industry stakeholders, where the demand for gold in India stands today and whether it's still a good investment.

Demonetisation – A Spoil Sport

India is the second largest purchaser of gold. It accounts for about 20-30% of global purchases, which is roughly about a 1000 tons per year. Post demonetisation, the morale of the G&J community has been really low and hence they have been very cautious before making any major investment decisions.

"There was a massive reduction in demand as there was less cash going around. People who needed gold were sitting on their demand and being watchful," said Tanya Rastogi, the Director of Lala Jugal Kishore Jewellers.

According to World Gold Council's estimates, the metal consumption will be down to 600-700 tons, for this year. However, the year's festive season (September-October), did see the demand for gold rising according to Vaibhav Saraf, Director, Aisshpra Gems & Jewels, who is expecting a 20% growth this fiscal.

Liquid Metal

Demonetisation also raised concerns related to gold's liquidity, where every move to exchange the metal for cash was under scrutiny. But now that everything has eased and the impact of the demonetization has relaxed, Rastogi said that gold's liquidity losing its luster is a myth.

"Gold in India has a unique value and it cannot be compared to equity. The government has come up with multiple generations of gold bonds, but haven't been able to taste success like the G&J industry did only because unlike any other assets, the metal is still very liquid where you don't have to wait 5-7 days to get cash. It immediate and if the amount is huge, they will probably do it in a day to two," she pointed out.

Investment Vehicle

Meanwhile, the industry is also observing Indians moving away from the bullion market, which is where people park their money, to the jewellery segment – a trend which is welcomed by the community.

Due to the stagnation in gold prices, people are now buying it only for aesthetic purposes, which is a good thing, said Saraf, adding, " I am making more my selling jewellery that what I would be doing by selling bullion."

However, the trend is limited to the urban India. The change in the mindset related to gold and its security is yet to pave in the semi-urban and rural area.

And so, Rastogi remains cautious of the fact as nearly 70 per cent of the gold is consumed by rural India, where even though it is bought as a luxury item, its still an asset.

"The rural India doesn't understand other asset classes like equity or SIPs. They either they buy land or gold. So, technically, gold is the only liquid asset that they have," she added.