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The last few months have seen a steep rise in consumers coming forward to exchange or sell old jewellery. As much as this might be beneficial to jewellers facing a shortage in the supply of gold, it has landed them in an unexpected quandary - one in which they are questioning the source of the gold.
"We have to be very careful. There are so many cases where people try to come in and sell old jewellery. But how do you tell if the gold has been responsibly sourced?" asks a top management official at an organised jewellery retail firm.
The Finance Ministry's directive to increase import duty of gold to 10%, an all time high, has led to a rampant increase in the inflow of illicit gold into the country, mainly through road.
While the customs officials are thoroughly checking this matter through meticulous frisking at airports and road checkpoints, some amount of illicit material still finds its way into India and seizures are reported to have increased by 4-5 times since the last year.
With the recently introduced RBI norms of upfront payments of cash for gold and other import restrictions to curb the country's large Current Account Deficit, gold imports into the country virtually came to a halt in the third quarter of this calendar year.
"In such a case, promotional offers, dicscounts and other incentives were introduced to encourage customers to recycle gold as manufacturers needed raw material. Even artisans were idle at that time," says Haresh Soni, Chairman of the Gems and Jewellery Federation.
Hence recycling increased this year with gold from recycled jewellery becoming the only source for retailers during a period that saw a supply glut.
"It leads to a very dicey situation, wherein the jeweller wants the gold but also has a major problem in identifying the source of it," Soni adds.
A part of the situation is mitigated by handing over account payee cheques to those exchanging gold for cash worth over Rs 20,000. That helps the jeweller get the raw material, while the onus for the gold if smuggled- rests with the entity seeking the exchange. However, even this encashing legit gold for cash are wary about taking a cheque as it will come under the scanner of the income tax department.
A store manager at a jewellery retail firm in Bangalore with stores across the country says all staff at the store have been trained to judiciously handle customers appearing to exchange gold for cash.
"We ensure that no jewellery worth above the Rs 20,000 limit is exchanged for cash and not a cheque," he says. "We all cross check the customer in our database to see if we have transacted with him/her earlier. That gives us some comfort during the dealing," he adds.
While this is the case for organised jewellery chains across the country as a result of the keen eye of government officials, the unorganized sector is less guarded in its gold-for-cash exchange transactions.
"Major jewellery retail players in the organised sector have been very very careful and generally avoid such dubious transactions, but smaller players often just go by their comfort level with the individual with the gold," Soni says.
"However, in general, everyone is alert as they are all aware of the legal issues they will face if they are in trouble," he adds.
