FM on Gold buying

India finance minister P.Chidambaram's appeal to citizens to cut down gold purchases for the sake of economic growth got world wide attention.

This is perhaps the only such plea from a modern day government to it’s people to refrain from buying a commodity for which it is the largest consumer and makes a huge industry.

Analysts are wondering about the consequences if people are mesmerized by Chidambaram's appeal and started ditching gold which influenced country's cultural, social and demographic factors.

India's gold jewellery industry is the largest globally, valued at more than $40 billion with jewellery constituting bulk of the yellow metal consumption.

Jewelleries alone playing an important role as widening retail network of organized players like Kerala based Joy Alukkas, Kalyan Jewelers and Malabar Gold have helped change consumer buying and shifting consumer preferences towards organized and branded jewellery.

Most of these jewelers have invested hugely in retail sector, especially in the last five years after India's Jewellery consumption over the past decade has recorded a strong growth upwards of 15% driven increasingly by organized retail.

India's jewelry industry, (largest with most number of gold shops than anywhere in the world) already hit by sharp rise in production costs and other expenses could be in more trouble if consumption dropped further.

Analysts said RBI directive curbing import of gold by banks on consignment basis could also moderate margins of domestic retailers to an extent.They added that working capital intensity of organized retailers is also likely to increase owing to rising stock levels necessitated by the aggressive expansion of retailers, funded primarily by short term borrowings.Besides that, jewelers across the country gives employment to millions of people and any big challenge to this labour-intensive sector couldresult in huge job loss and that alone could hit country's economy, analysts said.

The jewelers, however has not made any public remarks as a unit on Finance ministers appeal but agree with analysts views that failure to address the issue would further worsen the situation and lead to more job cuts and closure of units.

Even a ten percent cut in gold consumption in India could create an unprecedented crisis in the gold jewelery sector of the world's largest consumer and forced many outlets to close down their showrooms,resulting not only in job losses but could inflict a major blow to the entire in