In times of economic distress, gold is an asset class which offers a safe haven to investors. While the Covid-19 pandemic has caused volatility across global financial markets, gold remains a preferred investing avenue for investors.

But India’s yellow-metal dependent gem and jewellery sector, which contributes nearly 7% of the country’s gross domestic product (GDP) and also employs over 5 million people, has come to a grinding halt due to the lockdown in place to check the spread of Covid-19.

Kolkata-based industry body Indian Chamber of Commerce (ICC), which has put out these estimates is of the view that purchases are estimated to plummet 30% in 2020 from 690 tonnes last year. ICC’s director general Rajeev Singh explains that India’s gems and jewellery industry is predominantly wedding driven. But due to the new coronavirus such events have been cancelled and wedding shopping has come to a halt despite the ongoing wedding season, says Singh.

On the basis of industry reports, Singh highlights that India's average long-term gold demand is pegged at around 850 tonnes, primarily owing to Indian’s higher affinity to gold. “Despite gold demand predicted to be reach 700-800 tonnes in 2020, the volatility coupled with higher prices impacted the demand severely before the coronavirus outbreak,” says Singh. “Now purchases are estimated to plummet 30% in 2020, with the economic impact of the virus expected to be negative on employment and income.”

In a recent report, London-headquartered World Gold Council had also highlighted that the current uncertainty and its economic impact would have a negative impact on demand for gold jewellery, bars, and coins.

ICC’s Singh opines that the sector’s economic situation has taken a severe beating, and the most affected are the daily wage workers, as they are jobless due to the shutdown. That apart, the sector is bogged by multiple compliance issues like advance tax payments, maturity date of gold metal loans, interest payments on those loans to name a few. In light of the crisis, ICC’s Singh appeals to the government for sector-specific relief measures.

Among the measures, the industry body suggests extending the deadline for advance tax payment by at least 180 days, and roll over of gold metal loans at lower interest rates. ICC also appeals to the government to allow a 50 % reduction on interest rates for term loans and working capital facilities for a span of 180 days instead of 90 days in support of all businesses. The body also requests changes in non-performing assets’ (NPA) classification to 180 days for the short term.

Additionally, ICC firmly requests that the government should create a special fund for one-time financial assistance to the registered craftsmen and artisans who have turned jobless. “This measure will help the backbone of this industry, the jobless artisans to take care of their basic needs,” says Singh.

Soon after the 21-day lockdown was imposed, the government had announced various relief measures, which included relaxation on the Employees' Provident Fund (EPF) withdrawal rules to enable easier access to the money. The government had committed to pay both the employers’ and employees’ provident fund contribution in establishments having up to 100 employees with a salary cap, for following three months.

“ICC requests the government to extend the above facility for the next 6 months as a breather to the industry,” says Singh. He also requested that the facility be extend to all the companies without capping the upper limit on the number of employees.

Singh is optimistic that the suggested support measures would help the gems and jewellery sector to overcome this sudden and huge crisis. However, the possibilities of the extension of the lockdown, the financial and economic gloom, and paranoia around the pandemic would together mean that buyers would prefer to delay, if not avoid, their spends on luxuries.

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