Go to any jewellery shop, any city in India, you would invariably get the same quotation at a given time of the day for the gold embedded in the jewellery you buy. Economists say in a perfectly competitive market for a commodity, in the long run every seller would be selling at the same price. And if you think the market for jewellery is perfectly competitive and ergo witnesses the sameness on the rate front, perish the thought. The sameness of price in the jewellery market, on the contrary, is due to collusive price fixing by the regional cartels.
There is to be sure a small price differential among the markets in Kolkata, Chennai, Kochi, Hyderabad, Mumbai and Delhi and so on but not substantial as to give enough arbitrage opportunities to the intrepid trader or big ticket investor. Within the city, however, the quotes at a given point of time would be the same. There is no government price fixation. It is all done by the jewellers’ associations of respective cities formally or informally, but definitely in cahoots with the apex association at the national level.
To be sure, come festival and marriage seasons, big jewellers offer a slight discount with reference to the day’s prevailing rate and also at times condescend to waive making charges and wastage – euphemisms for fleecing customers. By and large the jewellery trade in India is in the vice-like grip of cartels with their ears glued to the London market from where they take cues for an apparent alibi for increase or decrease in the metal price. To the London quotations, they also factor in the movements in the dollar-rupee market. This is because production of the yellow metal in India has all but dried up and we are entirely dependent on imports.
The forex rate has a bearing on the prices of imported goods. So, even if the London prices fall, there are chances of an increase in the Indian prices, which jewellers glibly explained away as the impact of the fall in the rupee value vis-a-vis the greenback. Perhaps no other trade sells its wares to the customers at such a volatile price, so much so that customers often rue that if only they had purchased just a day later when the price fell sharply. And no other trade affords as much leeway for jacking up the price as jewellery.
The chain you buy may weigh 25 gms but you would be charged for 27.5 gms–the rationale given for the extra 2.5 gms is that it is wastage while making the piece. This quantity is then multiplied by the day’s quotation, for good measure displayed prominently, to give you the price you have to play in an apparent show of transparency. The jeweller might even empathise with you when you hark back to the good old days but would unctuously express helplessness what with the metal price being fixed by the market on which he has no control whatsoever.
The truth is there is no back-to-back relationship between the ruling market price of the yellow metal and the gold used in making the jewellery just sold. Like any other manufacturer, jewellers too stock up the raw material—in their case bullion—so much so that in a rising market they always make a profit.
Value addition in any case is relatively insignificant. In the event, the huge difference between the cost of gold embedded in an item of jewellery and its selling price smacks of a rip-off. In India, jewellery accounts for about 75 percent of gold used, with investments in gold bars and biscuits accounting for just 20 percent. The remaining 5 percent is for industrial use.
With jewellery figuring on top of the pecking order, jewellers have been enjoying a field day. In no other country people are so crazy about gold jewellery and in no other trade, the seller continuously readjusts the input cost to accord with the latest market price. The Competition Commission has the power to initiate suo motu enquiry against cartelisation. One wonders why it has not used this power for the larger public good by busting the jewellery cartel. Proof won’t be difficult to obtain given the fact that the product jewellers are pushing is homogeneous and the price is invariably the same.
When proved, the jewellers can be made to cough up three times their profits or 10 percent of their sales whichever is higher. To be sure, there are a lot of unreported sale given the free flow of black money into jewellery. Yet, the penalty is deterrent enough so much so that the whip has to be cracked just a couple of times. It would have a salutary effect.
Incidentally, the then finance minister Pranab Mukherjee’s newly minted mandate asking jewellers to collect a 1 percent tax from those who dare to pay more than Rs 5 lakh in cash has had no effect because jewellers have always been partners in the crime.
They rather lap up such cash with glee taking smug comfort from the fact that when such sales do not enter their sales register in the first place, where is the need to collect the tax. But despite a huge chunk of transactions with jewellers bypassing accounting, the penalty would be stiff and deterrent enough. Should the competition watchdog crack the whip, jewellers can be counted upon to become genuinely competitive, beckoning customers the way the American petrol bunks do—flashing a neon sign quoting their price per gallon of fuel so that a motorist can take a call on filling his tank there or some other bunk selling cheaper.
A jeweller who has made advance purchases with prescience in anticipation of price increase would in such a scenario be in a position to quote a competitive price without compromising hugely on his overall profits. For consumers, the price put on an item would not be as transient as it is today.
One can understand the sameness in price in the bullion market or in the paper gold market represented by ETF (exchange traded funds) but jewellery is a different kettle of fish. Being a value added product though admittedly with a very low value addition it ought to break free of the ruling price of the base metal.
But then even a marginal difference in rate per gm would make a substantial difference to consumers’ fortunes given the high price of the jewellery today. A customer is mulcted not on the rate front alone but on quality and quantity fronts as well. There is no way a customer can tell between a 22-carat and 18-carat gold. Incidentally, the RBI once toyed with the idea of mandating use of only 14-carat gold for jewellery purposes in order to conserve gold and foreign exchange but somehow did not go ahead.
But the wily trade, for all one knows, might have taken a cue and palmed off 14-carat gold as 18-carat or even 22-carat to the unsuspecting buyer –often a gushing female who, instead of pulling up the jeweller for shortchanging her on various counts, flashes an angry look at her husband should he dare to pick up a quarrel with the jeweller. Not all jewelers measure quantity and quality with foolproof electronic devices.
The quantity and quality issues come within the remit of consumer courts in the country but cartelisation i.e. collusive price fixing can be put an end to only by the Competition Commission.
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