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Not as good as gold

The time has come for Indian consumers to demand quality gold and silver jewellery. It may not be a pipe dream if one has to go by the recent news about notices being issued by the Apex Consumer Grievance Court to government bodies including, the Reserve Bank of India and the Bureau of Indian Standards among others.

The question asked from these bodies was the steps taken to ensure that the quality of gold in jewellery pieces was as stated.

These notices were directly a result of government agencies throwing up their hands on hallmarking.

In fact, a civil supplies minister had stated on the floor of the Lok Sabha that quality of jewellery would not be made a prime issue at the expense of jewellers and artisans in the bullion trade. But, why is the quality of jewellery (not just gold but, silver as well) such an issue?

No less a person than the incumbent RBI Governor Y V Reddy had stated in a paper presented by him at an international seminar on gold that consumers lost Rs 8,000 crore (Rs 80 billion) annually due to poor quality gold jewellery.

Not only that, unscrupulous traders go a step further to ward off any hallmarking initiatives. Reports indicate that the metal ruthenium is being used as an alloy with gold in making jewellery.

This is much cheaper (about Rs 100 per gm) than gold and blends very well. What is being done is that a portion of the pure gold is removed and replaced by this metal to add to the weight of the jewellery.

The scary part is that this cannot be detected even when the fire assay method is used. It can be detected only when very expensive spectrographic analysis is used. This facility is available with only a handful of people in our country. Thus, not only is the consumer cheated on the quality front (18 carat instead of the stated 22 and so on), but also on the weight.

Consider another aspect: in India a jewellery piece is charged on the basis of the weight multiplied by the gold price of the day plus a nominal making charge (say Rs 20-80 per gm). This was the case when the gold price in India used to be at a premium of over 60 per cent.

Today, the premium is down to single digits and at times the market is even at a discount to the international price. However, the prices of jewellery have not changed.

In fact, jewellers often reduce the making charge and at times even waive it. How can he survive and make profits? True, it may be possible to do business even at such low margins. However, the rapid growth in the number of jewellery outlets in the last 14 years makes one wonder.

A few years ago the World Gold Council and BIS carried out a survey on the quality of gold jewellery sold in Delhi. The survey revealed shocking facts.

Of the sample survey of jewellery purchased in various parts of Delhi, 80 per cent was found to be of inferior quality than what was claimed (18 carat or 16 carat instead of the 22 carat claimed). In some cases, the shortfall in purity was 40 per cent.

The jewellery markets were in a tizzy as there were rumours circulating thick and fast that income tax authorities were targeting such jewellers and that the IT department was keen to reopen cases and charge the jewellers with tax evasion.

Jewellers feared a long period of harassment by the income tax and other authorities. There was a feeling that in the melee many honest jewellers would be hurt. There was also an argument that this public campaign would drive the consumer away from gold and harm the trade permanently.

The general feeling was that self-discipline and education, of both the jeweller as well as the consumer, would ensure quality in the long run. The common refrain is that coercion would not solve the problem. It is argued that it could only drive the trade further underground.

The counter argument is that it has been 13 years or more since the Gold Control Act was abolished and the trade on its own has really not done enough on the quality front.

One argument is that cost of hallmarking is very high and that the consumer needs to be educated. The counter argument goes that if the hapless consumer has been cheated for so long than it is payback time for the trade. It has to bear the brunt.

There are a variety of reasons why hallmarking is not picking up. These include high costs, consumer unawareness as well as high taxes. Only if the quality of jewellery is guaranteed and the trade made official will the revenue increase for the government. Quality can be assured via trade self-discipline or any other method.

There has to be some mechanism if hallmarking is only viable for machine-made jewellery and not very easy for hand-made jewellery. But unless quality is above board those selling jewellery of dubious quality will not like to do official business (read provide cash memos to customers). The unscrupulous among the trade would not like any documentary evidence to lead a trail back to him. All the matters are inter-linked.

What then is the solution? Merely making hallmarking compulsory will not do. The ground realities need to be addressed, namely lack of infrastructure necessary for assaying centres and more importantly trade participation. The need of the hour is self-regulation by the trade.

However, the trade needs to be nudged towards it by the government. This has become more urgent as the two agencies (WGC and BIS) that carried out the surveys a few years ago appear to be fading from the scene.

The WGC appears content with trying to improve gold consumption. The BIS on its part too seems to have thrown up its hands. It could not honour its own deadline on introducing hallmarking in silver from April 2003 that the BIS chief announced at an international meet in January 2003.

The fragmented bullion trade needs an all-India representative body to start a dialogue with the government. The government must make it mandatory for every trader/jeweller to be a member of this body to commence business or be part of the trade. It is this body that could implement hallmarking all over the country. The trade body with government support could then set up assaying centres at the district level all over the country.

The trade body could be empowered to take action against erring traders/jewellers. Any breach must invoke harsh penalty. The penalty should be loss of membership plus a severe jail term.

In conjunction with this harsh measure should be an incentive for the jeweller to make quality jewellery. There should be an apparent and real benefit to the jeweller/trader if he conforms to norms.

After all, the 10-tola bar virtually vanished from the scene when import duties were reduced on serialised and pre-numbered gold bars to Rs 100 per 10 gm. A similar initiative linking a benefit to the trade to conform to quality could work wonders.