A golden story

The traditional gold market in Kashmir is resistant to hallmarking and transparency, leaving enough space for branded outlets and banks. An unconcerned government and indifferent traders threaten the livelihood of local artisans. A Kashmir Life report.

Historically, gold has remained the currency in conflict areas. Over the years, in Kashmir the yellow metal has ingrained itself so deep in the tradition that everyday seems to be a golden story, even beyond the small, scattered bullion market of Hari Singh High Street (HSHS). It is perhaps the only item that survived recession doom even when the prices are going through the roof.

Usually gold sales boom at the peak of marriage season however, the business sees high turnout throughout the year. Exchanges and barter of the old designs with new ones is a business not linked to marriages.

“We survive on the recycled material,” says Tufail Ahmad, proprietor of the Royal Jewellers, one of the leading traders in the valley. “There is slump in the market, people do not have much money and whoever has, invests it elsewhere. And now, there is mushrooming of the traders who are not even registered.” He does not know the requirement of the Kashmir market a year. He does not even hazard a guess. However, Ahmad estimates that Kashmir market consumes 70 percent of the recycled gold and barely thirty percent of the requirement is manufactured from the new gold purchases.

Off late, J&K witnessed mushrooming of jewellery outlets. Only a few of them are registered with the commercial taxes department. Right now, there are two associations in Srinagar alone and many more in the peripheries.  “Yes, some differences did trigger a divide,” said Prashutam Lal, a third generation dealer who heads the Gold Dealers and Manufacturers Association. “We have around 300 members and the other association must also be having over 200.” He said the abolishing of Gold Control Act triggered mushrooming and many of them are not even registered with the state tax establishment. The Hari Singh High Street alone is home to 300 dealers. Lal says most of them are “seasonal traders”.

The bullion market here has survived throughout on the rules they created. Till recently, no jeweller would offer a bill. They usually give just an estimate voucher which is inconsequential before the law of the land. These estimate vouchers, by and large, are accepted by the same dealers if and when the buyer comes to resell the item or exchange it.

But resale comes at a premium – Wat-e-Kasar, a system that exists nowhere on earth except Kashmir. Under this endemic trading practice, the traders deduct a particular amount in the buyback that, he says, takes care of the ‘wastages’, joints and other impurities (gold is alloyed with other metals to improve its durability) that have been there in the item when it was manufactured. Though it varies from item to item the trade has been sustaining the tradition at customers’ cost.

Off late, however, the dealers have introduced yet another system. They would give you the ‘estimate’ bill, however, in case you insist for a proper bill you would get it. By and large it is barely two percent of the customers who get the bill, rest get the estimate voucher.

Most of the jewellers in Srinagar may offer an estimate but it is unlikely – in majority of cases, that they would sell a low-carat ornament as a high purity item. This is a problem more rampant in the peripheral market where jewellery as low as 17 carat is sold at the cost of 22 carat. They have no registrations and obviously, no accountability.

Ironically, there is no facility that would certify the purity of a purchased item. In its absence the consumer has no option but to accept whatever the dealer claims and charges. This makes dealer the king. There have been countless cases in which barely 17 carat has been passed on as 24 carat.

Cartage is the system indicating the percentage of gold content in an item. To make jewellery gold needs to be alloyed with any other metal, to give it the requisite strength. The cartage system helps to understand the purity of gold ornament. The colour, hardness, scratch resistance and strength of an item solely depend on the balance of other alloying metals used while designing an item. Use of alloying material helps the item to become green, pale yellow, yellow, pink, red or rosy and even white. The lower the cartage, the higher are the chances of getting the best colours. Usually 24 carat is accepted as the purest and the finest indicating that the item has 99 percent of gold – 990 parts of gold in 1000 parts. (see table)

Since most of the dealers and the goldsmiths operate in unorganized cottage sector, chances of getting a low-carat item at a 24-carat cost is a routine, especially in the countryside.

“We are not against creating a Hallmarking facility in Srinagar,” says Tufail. “But what we insist on is that the government should assert and ensure that everybody adheres to it.” He said hallmarking should become mandatory for everybody but before that all the dealers must get registered.

“There is more problem in the system (government) than in trade,” he insists. Lal says it is the responsibility of the government but the machine is no sure-fire method to certify quality.

For the government tackling the gold market is not the top priority. The government sees the trade from the point how much it contributes to its kitty. Since the income from the gold proceeds is inconsequential to the public kitty, it is obviously on the tail end of priorities. There is only one percent VAT applicable on jewellery and it does not make a good proposition. Liquor has less than half of the turnover as gold in J&K but the taxman would offer taking care of wine simply because for every rupee, he would get thirty paisa. Almost one-third J&K’s tax revenue comes from liquor that is related with barely 10 percent of the population but not even one percent of the tax comes from gold even though it relates to almost two-third of population.

“There is no organized movement of gold and most of the dealers are unorganized,” says Commissioner Commercial Tax Bashir Ahmad. “Barring banks and some of the branded retailers, most of the movement is outside the system so there is huge potential for improvement.” He said part of the gold that is recycled continues to be part of the unorganized trade which makes no contribution to the public kitty. In fact, the income from the gold sector is negligible.

The irony is that the dealers, who have twin billing systems, discourage people from seeking proper bills saying the item would cost more – there is only one percent of VAT on gold which means Rs 1000 on a one lakh rupees purchase. While making the buyer afraid of an ‘inflated bill’, the state losses revenue but the seller protects his interest as far as income tax goes.

The day the policy makers see the bullion market from the consumers’ side, things can change for good. But nobody knows when that will happen. “There are only two factors that must be responsible for government inaction,” says Abdul Gani, a teacher who claims he was cheated. “I had no proof of the fraud and was left with low-carat jewellery. There is nobody to turn to for redressal,” he adds.

Demands for protecting consumer rights by law and creation of a mechanism by Consumer Affairs and Public Distribution ministry to stop fleecing of customers at the hands of jewellers, fell on deaf ears. It only takes Rs 14 lakhs to set up a hallmarking facility that can check and certify the purity of an item.

Things are changing albeit slowly. The branded jewellery is making inroads in Kashmir. “We have been there for a few years but the change is there. We now control around five percent of the market as more educated and quality conscious clients want right thing for the right price,” says Nissar Ahmad, whose is the manager at the Srinagar retail outlet of Tanishq.

As the up-market jeweller chain has all its transactions listed and the business practices transparent, he does not hide things. “We pay as much if not more VAT as the all dealers in HSH Street, that has two associations now,” Ahmad says confidently, insisting that they have a turnover of around Rs 13 crores a year now. He believes that J&K market consumes around 240 kilograms (barely 40 kg of it in Jammu) a month and not more than 10 percent of it returns for recycling in the system.

Nissar has his own assessment of the market. He has problems with the billing system, trade’s failure to install a hallmarking facility and the age old practices that lack any sanctity in today’s business. “It is tragic that in Jammu you have 22 hallmark showrooms and in Srinagar there are only two,” he says. As an insider he has been observing certain trends. “In the peak of marriage season the coins (popularly called pounds) are being sold in Srinagar for Rs 14,600 while as the same carat hallmarked coin sells at Rs 13500,” he said. “Right now the rate of (22carat) gold ornaments per 10 gram is between Rs 1400 and 1500 in Srinagar, while as in Jammu it is between Rs 1610 to Rs 1630. That is a variation of almost 15 percent, why is it so?” he asks.

Such practices existed in Jammu as well but the market has changed given its proximity with the plains. Interestingly, the consumer in Jammu has also changed. “Right now Jammu purchases only 60 percent of gold as 40 percent users have switched to diamonds but in Kashmir gold continues to be the first preference in 90 percent of the cases,” Nissar says.

Off late, intervention by banks has helped a great deal. They have started selling gold not because they want to discipline the trade but because they want to leverage their access to maximize their gains. As many as three banks are doing it and doing very well.

“Ever since we started selling branded gold coins, we have a good demand,” says A K Mota of the Punjab National Bank. “During the current financial year, we have sold 474 coins (3.75 Kgs) and it is picking up,” Mota says. “The total sale so far is 4913 coins that make it 42 kilograms.” Some other banks are also doing it. State premier J&K Bank intends to do it but is yet to get the licence.

But no bank has done it as successfully as the HDFC bank. “We introduced it two months back and right now we are selling 10 kilograms in Srinagar and five kilograms in Jammu, every month,” says an excited Iftikhar Ahmad, the young branch manager of its main branch in MS shopping Mall at Residency Road. “People are brand conscious and know the traditional market is selling less pure ornaments,” he adds with emphasis on every single word. The bank imports coins from Switzerland and co-brands it. “The demand is massive and it is increasing because people want to invest in gold,” he said.

But Iftikhar’s bank does not just sell the gold. The bank’s innovative policy of accepting gold as collateral for instant loans is quite popular now. “We started the scheme (only in Kashmir) around 18 months back,” says Iftikhar. “Initially it triggered a credit off take of around Rs 30 to Rs 40 lakh a month but now it is around one crore rupees a month.” He said right row when the creditors have paid back almost six crore rupees, still there is gold jewellery worth seven crore rupees in the HDFCs vaults and it is growing.

Many people do ask as why the J&K Bank is not taking the initiative given its massive network, reach and popularity. “We had applied few years back but the RBI has not acceded to the plea,” a senior executive speaking for the bank said.

Traditional trade is lackadaisical to the trend setting initiatives. Milking the pathetic governance system to sustain its mints, the trade is actually playing with the livelihood of hundreds of artisans who are directly linked with it. The more branded invasion in Kashmir, the more market the traditional trade will be losing. At the end of the day the big golden fish in HSH Street will be enough liquid to jump and get its pie in any sunrise sector leaving the poor artisans in lurch. It is high time for policy makers to ponder over the imminent crisis looming over a trade, a livelihood and a heritage.


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