India’s Gold Reform – The Final Push

The long-awaited structural policy reforms surrounding the organisation of India’s gold and jewellery industry are now in the finishing stages. Participants in the India Gold & Jewellery Summit (IGJS) 2018 unanimously commended the progress that had been made in the twelve months since the first edition. The summit shed light on the recommendations of the NITI Aayog report, the latest behind-the-scenes developments, expected challenges and prevailing ground realities; it also generated constructive debate among stakeholders on the key decisions being taken by policy makers to revolutionise the gold ecosystem. REGAN LUIS reports.

The second edition of the India Gold & Jewellery Summit, organised by the Gem & Jewellery Export Promotion Council (GJEPC) in New Delhi on November 23rd-24th, carried forward the conversation on the transformation of the Indian gold and jewellery business from the successful inaugural conference held in 2017.

The pressing need for adopting global standards, and appointing a single authority to administer all aspects of gold were the most oftrepeated demands over two days of intense discussions.

IGJS 2018 saw top policy makers and gem and jewellery industry stakeholders cover a gamut of topics, including technology’s role in upgrading jewellery manufacturing, the reforms suggested by the government think tank NITI Aayog, skill development, tax issues, enforcement, bullion banking, refining, spot exchange, hallmarking, the Indian Good Delivery Standard and more.

The summit was also attended by a delegation from Zimbabwe that was led by Raj Modi, minister of commerce & industry, Zimbabwe.

Presiding over the opening ceremony, Suresh Prabhu, union minister of commerce & industry and civil aviation, called on the industry to live up to its full potential. “The gem and jewellery industry is one of the top contributors to the nation’s economy and has the potential to grow exponentially. As the largest consumer and importer of gold, India has built a huge ecosystem around the gold industry and we must use this skilled manpower available to cater to the global market. Out of the total gold imported only 10% is exported as jewellery.

“The proposed domestic gold council will address all the issues related to the yellow metal in a holistic way through an integrated gold policy. We have to make sure that our existing businesses will also upscale and upgrade infrastructure to comply with global standards and ensure that consumers are not taken for a ride. Human resources are a key component of the industry and, therefore, we have decided to work with the ministry of skill development to create a few hundred thousand jobs and bring new artisans into the fold as well as upgrade the skills of existing workers, thus expanding the resource base. GJEPC should continue forging deeper partnerships with prospective countries and tap the vast economic and employment opportunities in this business. GJEPC’s second IGJS will aid the process of bringing in structural policy reforms to take the industry to the next level.”

Pramod Agrawal addressing the gathering.

In his inaugural address, GJEPC chairman Pramod Agrawal listed the various activities of the Council to help the industry achieve its target of $75 billion in terms of exports by the year 2025. Agrawal informed that in two months’ time the Council will hold the stonelaying ceremony of the Jewellery Park in Mumbai, which entails an investment of R13,800 crore.

He said that India has the potential to double its gold jewellery exports to $18 billion by 2025 and add 3 million more jobs to the existing 5 million people directly employed by the industry.

Agrawal said, “We have to promote Brand India across the globe in the same manner that Italy markets its jewellery. We have a government grant to set up 13 Common Facility Centres (CFCs); three of these are up and running, a fourth one will be launched in Junagadh soon, while the fifth CFC will be set up in Coimbatore. We have all the capabilities and skills to reach the target of $75 billion but we need the government’s support too. We need the finance ministry and the commerce ministry to ensure that the gold policy is industryfriendly.”

“I urge the government to reduce the import duty on gold to 4% as the current rate of 10% is blocking the working capital of the industry and is hurting domestic jewellery sales,” Agrawal appealed.

Aram Shishmanian, CEO, World Gold Council (WGC), presented papers on global and India-centric trends on gold. He noted that 2018 had been a pivoting point in the discussion around the need for reform of the gold industry.

Shishmanian said, “We are moving from talk to action. For many years government policy considered gold as a demerit good, but that has changed, and today it is a valuable economic asset. The gold monetisation programme will make gold a financial asset as part of the mainstream of Indian society and commerce. For the first time, trade bodies have come together unanimously supporting the establishment of the assaying institute which was launched earlier this week. The institute is going to train a new generation in assaying, provide employment certification, but fundamentally it is about ensuring that there is absolute, unequivocal, universal confidence in the product consumers buy and to eradicate systemic under-karatage that exists.

“The India Good Delivery standard, which is being methodically and progressively developed, is a cornerstone of reforming the gold industry and has adopted the international best practices of the London Bullion Market Association (LBMA) to ensure integrity of a trading exchange. This year, 27 trade bodies and major banks came together in collaboration and produced the blueprint for the gold exchange. The specifics of how it will work have been completed and it is being presented to the government for consideration.”

Dr. Anup Wadhawan, commerce secretary, union ministry of commerce & industry, said the adoption of prudent practices and processes accompanied with selfregulation and innovation would be essential for growing business in the future. “Gold and jewellery has been synonymous with Indian society and culture as they have been part of all our significant milestones of life’s celebrations. The concept of gold as an asset has deepened in the scenario of market-currency volatility. There is a lot of sensitivity involved and the comprehensive gold policy will have to balance regulatory concerns with ease of doing business so as to avoid any violations. Industry has to explore innovative ways to tap idle gold reserves and blend the traditional and modern ways to excel globally,” Wadhawan noted.

The attendees included gold miners, policy makers, retailers, bankers and analysts among others.

NITI Aayog – from thought to action

One of the main topics of discussion was the report submitted by the government’s policy think tank, National Institution for Transforming India, better known as NITI Aayog, on the transformation of the Indian gold market.

The NITI Aayog report contains 84 recommendations for gold and has outlined 25 priority areas.

The trade felt that although the report was comprehensive and well intentioned, there should be swift action in its implementation.

Yaduvendra Mathur, additional secretary, NITI Aayog, said, “The NITI Aayog report is completely aligned with the challenges of the sector. We need to look at ways to increase gold’s contribution to the GDP and increase the market size without making an impact on the Current Account Deficit (CAD).

“NITI Aayog may be a ‘think tank’, but in some areas it can assume the role of an ‘action tank’. We may not be a ministry, but we do have a governing board, and our role is to address policy challenges. We do not operate in an ivory tower, but engage closely with ministries. This document is referred to like a planning commission report. India is expected to be a R5-trillion economy by 2025, and double to R10 trillion by 2030; as these mileposts of the Indian economy rise, so will the contributions of industries like yours.”

Mathur said that gold should be looked at not just as an investment class, but as a raw material. He added that the disruption by mega companies in the retail sector is indicative of the future, which will be dictated by the consumers’ personal choices.

“We are moving into a different era where the manufacturing may not necessarily be done by skilled individuals, but robots, 3D printers and so on. The AI-driven future may look daunting but we should use this opportunity to retrain people and discuss skill set transformation at summits like this.”

A GJEPC press release quoted Rupa Dutta, economic adviser, ministry of commerce & industry, as stating that the draft of the gold policy will be shared with the union finance ministry in the coming weeks.

K. Rajaraman, joint secretary (investment), department of economic affairs, ministry of finance, said his department would remove any obstacles that may be in the way of unlocking the potential of this industry. Rajaraman said, “Gold is not only a commodity but a near-currency, which means that the more it can behave like a currency, the greater the value it can add to the economy. Currently there is friction in several parts of the pipeline that are close to the economy and we are working on them.

“Regarding NITI Aayog, we have around 29 recommendations and are working on a policy which is almost in its final stages. We will bring it out for circulation in another 15-20 days. The government is keen to implement the recommendations of the NITI Aayog and there is no going back.”

Rajaraman added, “If standards and skills are the issue, then the trade bodies should be drawing money from the government funds available which can be used to train artisans so that they can reach world standards. Without standards and certification, we will remain stagnant, catering only to the local market. I would strongly recommend after this meeting that all associations should commonly adopt a resolution that we will from next year move on to the Good Delivery Standards of the LBMA. It will be a strong signal to the rest of the world that India is ready to move on.”

Rajesh Khosla, chairman, MMTC-PAMP, preached the doctrine of self-help and encouraged the industry to take action in its individual capacity. “First, we must demonstrate that we have done everything possible within our means and only then should we request the government to provide additional assistance. The assaying training centre is one such example of our individual action (see box).”

Prakash Pincha (third from right) and Dinesh Navadiya (extreme right) presenting mementos to panellists who discussed the need for robust standards in the gold industry. (From left) Rashmi Dastidar of MMTC-PAMP, Rahul Gupta of Bullion Federation of India, Terry Heymann of WGC, Aarti Nihalani of Oliver Wyman, James Jose of Indian Association of Hallmarking Centres, Shakila Mirza of LBMA, and T. Kalaivanan (second from right).

Ajay Mehra, co-chair, FICCI gems and jewellery committee, said the NITI Aayog report has recommended to the government that it should stop seeing the gold and jewellery industry in silos, and view it holistically. “We are all in it together and it cannot be us versus the government as our goal is identical. If today we are the cutting centre of the world, then why can’t we also become the gold refining centre?”

Praveenshankar Pandya of Revashankar Gems and GJEPC ex-chairman, said it was necessary to have a single authority that works 365 days on the gold policy. “The Indian jewellery industry’s development has been haphazard. We have not applied ourselves in the same manner as, say, China, whose economy opened up roughly around the same time as India.”

P.R. Somasundaram, managing director – India, WGC, lamented the fact that India was still dragging its feet over something as basic as hallmarking, while the global benchmarks were advancing with each passing year. “Infrastructure has to come from the industry, and policy enablement has to come from the government. We are very passionate about standards, but we are forgetting that the world is moving ahead on standards. Even though we opened up gold 25 years ago, we are still talking about mandatory hallmarking at the moment. The world is moving on Environmental, Social and Governance (ESG) standards.

“We are talking about exports without understanding how the world is looking at standards. Tomorrow they can say ‘you don’t have ESG standards, I don’t want to source gold from you’. It’s not about whether you need it; it’s about how others perceive it. If policy can enable standards and infrastructure, then I don’t think we have a problem,” Somasundaram stated.

Future mapping

GJEPC vice chairman Colin Shah moderated a session on the role of technology and innovation in doubling jewellery exports from India. The speakers touched upon a range of interesting topics, including Artificial Intelligence (AI), 3D printing, digitised inventory, techbusiness incubators and more.

Dr. Amit Singhee, STSM & manager, retail & operations, IBM Research India, spoke about the use of AI to reach new consumers. He demonstrated how retailers could undertake rapid and cost-effective digitisation of their inventory, making it easier for a customer or multiple customers in different locations to virtually see and try on several jewellery designs.

Sanjay Ranawade, chief manufacturing officer, Titan Company, gave a presentation on the company’s pioneering role in improving the working conditions of its artisans, deploying advanced technology for checking gold purity, as well as improving quality and efficiency of jewellery manufacturing procedures.

K. Srinivasan, convener, GJEPC jewellery panel committee and chairman of Emerald Jewel Industry India Ltd., said that gold consumption, especially among millennials, was on the downturn and the increase in consumer buying power was not benefiting jewellery. “The need of the hour is an innovation centre that can help us to develop faster. For too long the jewellery industry has been engaged in a price war; instead we should channel our competitive spirit towards a constructive purpose like a design war, a finish war or a technical war.”

Tanmay Shah, head of innovations, Imaginarium, said that demand for mass produced jewellery is diminishing as technology was making customisation easily accessible. “At Imaginarium, we attempt to marry technology with deep insights on what customers want and how great craftsmanship, good problem solving, and a good presentation package can help. Over the last ten years we have seen lowering demand for mass manufactured products, and we’re moving towards mass customisation. This is a macro trend that has been picking up over the years. The primary reason for this is customisation becoming accessible. The connectivity that we are all experiencing is forcing us to constantly differentiate from everyone around us. So the products we buy have to be able to express this differentiation and mass manufacturing is probably the worst solution for that,” Shah said.

Priya Meenakshi Narsimha of Phone Pe noted that while the time is right for the tech world to bring innovation and disruption to the gold industry, it was essential to have clarity on the policy towards digital sales and first resolve issues like double GST, etc.

Kiran Momaya, professor at Indian Institute of Technology (IIT) – Bombay, informed about the various opportunities for the jewellery industry to collaborate with IIT and create a technologybusiness incubator to tap some of the brightest minds in the country.

Deviating momentarily from routine trade and policy issues, Harish Bijoor, a brand expert and management consultant, told jewellers to stop treating jewellery merely as a commodity if they intended to charge a premium for their products. “In India people don’t think of jewellery as a luxury as the commodity connect is too deep rooted. The only thing that can help your jewellery command a premium is a brand, and this can only be achieved through reinvention, innovation and disruption. At present, your margins are wafer thin. If you still define gold price, gold loss, making charges, etc. as your USP, and if your advertising still talks this, then you are a commodity. Not only are you playing that game, but you’re advertising that too. You’re building a self-fulfilling prophesy of being stuck in a trap,” Bijoor suggested.

Search for a standard-bearer

Most of the panellists agreed that implementing a set of standard practices could enable the industry to deal with the diversity and complexity of issues surrounding responsible sourcing, environment, sustainability, and climate change among others. Not complying with global standards was not an option, they cautioned.

Rahul Gupta of Bullion Federation of India informed that India was likely to have responsible sourcing guidance in place by 2019. He said, “We had requested the Government of India that we need to be a party to it, because without that, we will not be a part of the supply chain moving behind refined gold. We have conveyed to OECD that after the guidance document is finalised, people will need at least two years to understand and be prepared for audits. Post that, whatever gold is refined in India will match international standards.”

Gupta added, “If standards are not met and someone says that India is sourcing irresponsibly sourced gold, then that would damage exports and the trillion dollars’-worth of individual gold reserves in India too gets tainted. If we’re talking about a spot exchange, gold monetisation, higher jewellery exports, all these objectives can be achieved only after we match global standards and our products are accepted internationally, whether in the form of investment or jewellery.”

Shakila Mirza, executive director, LBMA, said that standards without enforcement would not work without the carrot and stick to impose them. Mirza said, “LBMA is an authority for the global precious metals market. Established by the Bank of England, we are a standards-setting organisation and these standards came about as a result of market demand, support and enforcement. You need one organisation like the LBMA that establishes, implements, and enforces standards; I’ve been coming to India for a few years but I’m still struggling to understand which is that one organisation in India that is taking the lead in bringing the market together, consulting on those standards, implementing and enforcing it and making sure that those standards work for the local market. Standards give you a competitive edge and bring you benefits on an organisation basis.

“The LBMA would not have been successful if it couldn’t actually enforce its own standards. We’ve been able to demonstrate over the years that if you do not comply with the LBMA standards you will be taken off the good delivery list. And the commercial impact of being removed is huge because the London market will not accept your gold. So it’s in your commercial interest to comply with those standards. The only way to ensure success is to come together as a marketplace and champion one organisation to lead this through.”

Terry Heymann, chief financial officer, WGC, spoke about the discussion around sustainability on the world stage and the impact on the gold industry. He said that from the gold investors’ standpoint, issues like ESG and sustainability were rapidly going up the agenda and it was important to consider what this means from an Indian perspective.

Heymann commented, “The investor community is now driving the agenda around climate change. Nearly a 100 trillion dollars-worth of assets are managed by various different investor groups and consortiums who are committed to saying we will only invest this in assets where we have confidence that this will make an impact on climate change. Climate change has lots of linkages with gold. The gold industry should start to proactively address these investors’ concerns and get engaged in the conversation on climate change and greenhouse gas emissions, which are relatively small from the industry.”

James Jose, founder secretary, The Indian Association of Hallmarking Centres, said the country is in the process of developing a delivery standard for bullion. “For the past six months it has been going through various committees, and it is expected to be finalised in another six months’ time. Once the standard for India Good Delivery is finalised and published by the Bureau of Indian Standards (BIS), then the industry will form a steering committee to form a peer review mechanism.”

The speakers said that selfregulation is key as the industry wouldn’t want policy makers to set standards that don’t work. They said the industry should take charge, come together and give the government confidence that it is engaged with regulators.

Skill development

It was generally agreed that skill development will play an important part in transforming India’s gold markets and that in order to upskill existing artisans, the industry needs to work in unison with the government.

According to the NITI Aayog report, skill development also needs to cater to new and modern methods while preserving traditional skills that would uplift the capability of domestic manufacturing to create competitive exports.

“Today, the global IT sector cannot do without Indians; I want the same to be true for our jewellery artisans,” said Sanjay Kothari, the newly appointed chairman of the Gem & Jewellery Skill Council of India (GJSCI).

Anil Kumar Sharma, director of operations at the National Council of Applied Economic Research (NCAER) and Dr. Poonam Munjal, a fellow at NCAER, informed that they would be undertaking a cluster mapping study in the first week of December. India is caught in a vicious cycle of low skills and low jobs and more than 70% of the workers in the gem and jewellery industry are from urban areas, they revealed. The study

aims to find out the exact number of clusters, units and workers employed by the gem and jewellery industry across India. The survey will also analyse parameters like technology readiness, production, output, turnover, gender-based distribution, qualifications, skill training, preparedness to adopt new techniques and designs, worker issues and challenges, and differences between existing and desired performance. The gathered data would be useful in the promotion of the industry and formulating policies for it, they noted.

If we take care of the basic necessities of artisans like education, health, etc., then they will be more open to skilling programmes, stated Gaurav Kapoor, head-industry partnership & CSR, National Skill Development Corporation (NSDC). He noted that 47% of worker wages increased after enrolling for the Recognition of Prior Learning (RPL) programme, while 63% got better recognition in their jobs.

Skills are the new currency of the future, said Rajive Chawla, chairman of Integrated Association of Micro, Small & Medium Enterprises of India. He said the business world is evolving rapidly and success of any sector will depend on these four critical factors: is it global, does it use the latest technology, is it sustainable, and is it focused on skill development?

Chawla informed about the government’s Zero Effect- Zero Defect programme that provides up to 80% subsidy to manufacturers who produce top quality items without damaging the environment. “I’m surprised that out of the entire jewellery industry, there is only one silver rated Zero Effect-Zero Defect SME, Mars Jewels, a silver jewellery manufacturer, which has availed of the scheme’s benefits by becoming organised. I’m amazed that this programme hasn’t gone viral, and I think all the SMEs in your industry should benefit from it.”

Kamlesh Vyas of Mars Jewels, who was seated in the audience, addressed the gathering by saying, “I request all of you present here to use this opportunity provided by the government. Today, we are not only recognised by the Government of India, but this will help us to grow globally. I thank the GJEPC for appreciating my efforts.”

Chawla told participants about several other government grants, wage subsidies for artisans, and programmes that offer anywhere from 50% subsidy for purchasing testing and measuring equipment to 90% subsidy for cluster projects of 10 units.

“The country has allocated R10,000 crore for schemes that encourage the training of youth. Unfortunately, we have used only R400 crore so far because of our own ignorance of these schemes. I believe that ignorance and scepticism are voluntary misfortunes, so appeal to everyone to take advantage of the benefits that are available.”

Prakash Pincha, member JPC, GJEPC, said that underemployment was the biggest problem in his state of West Bengal due to the oversupply of labour. “We need to think beyond gold and look at silver and imitation jewellery to grow demand for Indian jewellery. We need to promote the handcrafting skills of India and increase marketing for silver and imitation jewellery.”

Transparent gold

The NITI Aayog report noted that rationalising the import duty on gold and gold doré would remove the arbitrage between Indian and international gold prices thus disincentivising smuggling.

OP Daditch, principal commissioner of customs, informed that in 2015-16 India had seized 3 tonnes of smuggled gold, and more than 2 tonnes of gold were seized until September 2018. He said there had been a spurt in gold being smuggled through north-eastern states, especially from Nepal, Bhutan and Burma.

Pankaj Singh from the Directorate of Revenue Intelligence (DRI) said that in future it would be more difficult to commit commercial frauds and duty evasion due to the excessive digitisation, easy availability of data, and cooperation with governments of countries such as UAE and Hong Kong. He said the industry should reform from within and bring standards of global scale. “An ecosystem has to be built so that we move towards cleaner methods of business and accountability.”

Nishant Shah, legal expert and partner, Economic Laws Practice, gave a presentation of the many complications that have arisen as a result of the implementation of GST, which has made tax applicable on sections of the pipeline that had not been brought to tax before. On the subject of inter-trade dealings, Bhavin Mehta of DEE CEE Associates clarified that manufacturing jewellery from gold belonging to an unregistered person will result in a GST rate of 18%. He advised that jewellers should understand the nature of the transaction and the tax liability before applying GST.

Bullion banking

The session on bullion banking as a tool to leverage India’s wealth in gold discussed the intricacies of operating metal accounts for supplying gold, settling contracts, etc., and even the possibility for banks to open zero-balance metal accounts for individual customers to trade gold. Rajesh Khosla of MMTC-PAMP informed that a working group for setting up a gold clearing corporation in India will submit its proposal to the finance ministry in a little over a month. This will do away with the hassle of trading physical gold as it will all be done on a demat platform.

Khosla noted, “When you look at an asset class being developed you’re looking at a certain degree of standardisation, you need to know what is that asset, and you need transparency in its valuation. More significantly, when you look at treating banking in terms of metal, technology plays an important role. Going forward, it is technology that will drive the efficiency and transparency. If we can harness this technology properly, that will enable harnessing India’s economic potential for the 25,000 tonnes of gold that we have above ground.”

Outlook

WGC’s Aram Shishmanian noted, “Looking ahead, first, we will require the establishment of a regulatory agency to oversee the trading market, second, the RBI to approve that banks can trade gold, and three, the banks themselves have to become bullion banking experts and have that capability. “The leadership that has been demonstrated by trade bodies, government and banks has been extraordinary. The ministry of finance, the ministry of commerce, and NITI Aayog have taken the leadership in developing and writing the proposed policies around the future of the gold industry together with the major trade bodies and banks. I will ask you to continue that leadership.

“The Indian gem and jewellery industry constituents should speak in one voice when it comes to policy changes. Do not compromise on the fundamentals and keep your eye on the long-term prosperity and success of the nation and your businesses, and not the short-term benefits that could be had. “Gold is part of the lifeblood of the country, but it is not moving fast enough relative to the formal, regulated, new India that is emerging very rapidly. Gold has to come out of the shadows and be part of the mainstream of the financial world and commerce.

It cannot be a parallel economy any more. “India has to get proper representation in the global gold exchanges context and that’s why a comprehensive gold policy is the need of the hour,” he said.

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