While the government is moving ahead to implement mandatory hallmarking (HM) of gold, which is likely to impart transparency to the jewellery sector, several in the trade are resisting its execution. For, the sector is still used by many as a conduit for unaccounted money.
Once the mandatory hallmarking regime arrives, likely to be from early 2018, the income from tax revenue could potentially be doubled. However, jewellers will get six months’ time to obtain the Bureau of Indian Standards (BIS) licence and to also sell the existing non-hallmarked stock.
“Unaccounted funds from household income are usually routed to the jewellery trade,” said James Jose, joint secretary, Hallmarking Centres’ Association, adding, “a large number of jewellers are trying to resist mandatory hallmarking as they want to continue selling under-caratage jewellery and make more money.”
A BIS hallmark certifies the purity of gold used. With mandatory hallmarking, consumers may tend to prefer trusted names that typically comply with the law, leading to higher sales volumes for such vendors.
‘HM without licence’
Presently, a majority of the jewellery hallmarked in India is not accounted for and not reported to the BIS. Unaccounted hallmarking happens for several reasons: jewellers do not have BIS licence; hallmarking centres do not take samples or carry out testing, ie what happens is referred to as ‘dabba’ hallmarking and hence not recorded or invoiced; jewellers evade BIS royalty and service tax; jewellers and wholesalers are ready to pay only ₹10 per piece instead of the BIS HM rate of ₹35 per piece. Hence HM centres prefer to conduct business that is unaccounted in the books.
“Several thousands of jewellers all over India carry out hallmarking without any BIS licence [thus] cheating customers,” said Sebastian Joseph, director, Chemmanur Jewellers of Trichur. According to him, “Small and marginal jewellers are are not interested in hallmarking.”
In 2012, under the aegis of Prof. K.V. Thomas, the then Union Minister for Consumer Affairs, all 270 jewellery shops in Kerala’s Idukki district obtained BIS licences. But after the hype of the campaign was over, a majority of the licensed jewellers discontinued hallmarking for various reasons. Finally, the only hallmarking centre in that district also closed down due to poor volumes.
All HM centres in India send their monthly business data to BIS office. The data shows that in 2015-16 and 2016-17, the country had hallmarked about 350 lakh pieces of jewellery articles.
However, Mr. Jose said if the average weight of each article is 8 gm, then the total quantity hallmarked is about 280 tonnes of jewellery a year, out of the about total 1,000 tonnes sold per annum in the country.
In south India, where major jewellery groups typically account for hallmarked jewellery sold, about 50% of the HM business takes place, whereas in the north, hardly 25% of hallmarking is accounted for, taking the all India accounted business to a maximum of 35% of the actual hallmarking done, said Haresh Acharya, an Ahmedabad-based bullion dealer.
‘Data mismatch’
Thus, according to Mr. Acharya, the BIS figures of 350 lakh pieces per annum is not authentic and the reality may be 800 lakh pieces or about 640 tonnes of jewellery per annum, including illegally marked jewellery. Hence, presently, a little more than 50% of the jewellery sold in the country is hallmarked.
According to Mr. Jose, 500 tonnes of bullion comes to about 640 tonnes of jewellery; another 200 tonnes of bullion come through smuggling, while a further 200 tonnes come out of scrap jewellery and recycling, while the remaining 50 tonnes are accounted for by the auction of jewellery of defaulted gold loans from NBFCs etc.
Each of the existing 500 hallmarking centres have the capacity to hallmark 2,000 pieces or 20 kg of jewellery per day.
Some of these centres have the capacity to hallmark up to 100 kg per day. The capacity housed by all the 500 centres is adequate to hallmark 1,000 tonnes of jewellery a year.
These centres are located in close proximity to the jewellery manufacturing centres of Mumbai, Kolkata, Ahmedabad, Rajkot, Chennai, Coimbatore and Trichur, from where the jewellery is redistributed to the retailing towns. Also, the main cities have about 15-20 hallmarking centres, which is more than adequate.
‘Urban focus’
Mandatory hallmarking is expected to be introduced in a phased manner, starting from metro cities. Presently, the government offers ₹20-50 lakh subsidy for setting up a hallmarking centre. The monthly operational expense of a centre is about ₹2.5 lakh and it needs a business volume of 750 pieces per day for its financial viability. “Such being the case, we cannot expect HM centres to come up in smaller towns and villages, even when the subsidy amount looks attractive for an investor. Presently, several HM centres are operating at 30-40% capacity utilisation,” said Mr. Jose.
‘Carats galore’
Even though nine different caratages were permitted to be hallmarked from the year 2000 to 2015, the quantity of 20 kt and 21 kt hallmarked gold sold was miniscule as per BIS data. The precious metals committee that decides on the permitted caratages comprises of representatives from the ministry, technical experts, consumer organisations, jewellery manufacturers, retailers and other industry bodies.
Based on feedback, the committee has permitted three caratages of 14, 18 and 22 kt. Earlier, caratages of 19, 20, 23.5 and 24 kt were permitted, often misleading the consumer. Unscrupulous traders pushed lower caratage items for the price of 22 kt gold.
Based on monthly data submitted by HM centres, BIS ascertained that 99% of hallmarking done in the past 18 years was for the 22 kt category and that the other caratages of 19 kt and 20 kt showed insignificant volumes. These numbers were inadequate to substantiate jewellers’ claims for permitting multiple caratages.
In Gujarat, 83.3 purity (20 kt) is hallmarked at HM centres by wholesalers and sold at different prices. Same is the case in Meerut in U.P., in Delhi and in Bangalore, where considerable quantities of 20 kt jewellery are hallmarked as belonging to the higher 22 kt category by many HM centres. For such reasons, said Mr. Acharya, consumer organisations appealed to the Ministry to reduce the number of caratages permitted.
