India’s jewellery market, estimated at $45 billion (or Rs 3 lakh crore), which is 85 per cent unorganised, may see a shift due to demonetisation and introduction of the goods and services tax (GST). As Titan’s Managing Director Bhaskar Bhat explains, the ban on high-value notes coupled with the GST, will compel the unorganised market to formalise.
In a conference call today, Bhat said as much as 15-30 per cent of the unorganised jewellery market could perish if they were unable to organise their businesses in the new environment. “The unorganised jewellery market could be squeezed because it will not be able to manage increased compliance,” he said addressing investors on the effects of demonetisation.
Almost 85-90 per cent of transactions in the unorganised jewellery market in India take place in cash as opposed to the organised market where cash transactions are to the extent of 40 per cent. Unorganised players, Bhat said, would have to switch to credit card-based sales, as was the trend on the organised side.
Other organised players such as Orra and Gitanjali are in agreement. Vijay Jain, founder director and chief executive, Orra, said: “While the next 12-15 months will be challenging for both organised and unorganised players, in the long-term the organised market will gain from the new taxation and payment environment. What we are seeing happening to jewellery today is what happened to apparels around 20-25 years ago. At that time, you had apparel stores scattered all over, which slowly but steadily began organising themselves. Something similar could happen in jewellery.”
Mehul Choksi, chairman and managing director, Gitanjali Group, said in seven years the organised market could double to around 30 per cent from 15 per cent now, a big shift given that the conversion rate from unorganised to organised prior to demonetisation was low.
Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, said: “Small players could either become franchisees of organised chains or may simply choose to transform or reinvent themselves. My guess is that they will be associated with the retail trade in some way since jewellery as a business has been in their family for generations.”
India is the world’s largest consumer of gold at nearly 700 tonnes a year, a third of the total gold mined in the world. In 2015, the government introduced a sovereign gold bond scheme that allowed people to swap their gold for an interest-bearing bond.
Additionally, it was also made mandatory for consumers to declare their PAN in the case of jewellery purchases above Rs 2 lakh.