How hallmarking could change the way you buy gold

The government is firm in its resolve to ensure that only hallmarked gold and jewellery is sold from January next year. But going by jewellers’ complaints, the situation on the ground does not seem propitious for a smooth rollout.

What is hallmarking?

Hallmarking is a process of certification of the purity of gold jewellery, in accordance with specifications determined by the Bureau of Indian Standards.

As part of this process, gold articles are to be evaluated and tested at an official ‘assaying and hallmarrking centre’, which then certifies that the metal used conforms to the national and international standards of purity and fineness.

The hallmark in India is to be provided by the Bureau of Indian Standards, the apex body in India that sets qualititative standards (known as Indian Standards) and certifies for product quality, and management systems in respect of all matters related to standardisation, quality and certification.

But it appears that the government’s plans may be subject to a reality check on the ground.

Inadequate infrastructure

The stipulation that all gold sold should be hallmarked from January 2018 will likely face headwinds from jewellers who say that the infrastructure to facilitate a nationwide rollout is not in place.

Representatives of jewellers’ associations told BusinessLine that there are not enough hallmarking centres to meet the demand that will build up once the government makes third-party hallmarking a precondition for jewellery sales.

On the sidelines of a seminar to mark World Standards Day, Minister for Consumer Affairs Ram Vilas Paswan recently said, “All gold products to be sold in India should be under hallmarking regulations from January next year. As most Indians understand purity of gold in terms of carat, gold ornaments must bear not just the hallmarking value (such as 916 or 958) but also their carat value.”

The revision of the standards on gold will also ensure that only categories of 14, 18 and 22 carat will be sold in the country, Paswan added. He also asked the Bureau of India Standards to have regulations in place by January for the smooth implementation of the scheme.

According to Zonal Chairman, North India, All India Gems and Jewellery Trade Federation, Vijay Khanna, these categories are in line with the domestic demand. “These are the more popular carats sold in the country. But the government should also consider adding 20 carat and 24 carat in the list of eligible categories,” he said.

Shift to formalisation

According to an analyst at a domestic brokerage house, India’s current demand for gold is about 600-700 tonnes a year. Of this, roughly 500 tonnes a year goes for jewellery and the rest for coins and other forms of gold. Analysts also say that just 20 per cent of the retail gold market is in the organised sector in terms of compliance and hallmarking.

But according to the National Secretary of the India Bullion and Jewellers Association, Surendra Mehta, there has been a shift towards organised trade jewellery retailing in the wake of last year’s demonetisation.

“Before demonetisation, just 40 per cent of the market was organised, but now it is nearly 70 per cent,” he said. “Cash transaction in business-to-business transactions has come down to virtually nil. There is still some prevalence of cash in business-to-consumer transactions, but that is largely restricted to rural areas.”

“With increasing demand, there is a need for more hallmarking centres,” he added.

According to the Bureau of Indian Standards, as of October 2017, the number of Assaying and Hallmarking Centres recognised by the BIS stands at 535. In an e-mailed statement to BusinessLine , BIS said, “The hallmarking centres are set up by private entrepreneurs and their setting up is a market-driven activity where the decision to open a hallmarking centre is taken by entrepreneur based on the commercial viability at any location.”

Mehta said the government’s decision to mandate the sale of only hallmarked jewellery from January has impacted business in rural regions. He said, “There has been a shift of business from rural to urban areas after the announcement. Consumers are demanding hallmarked gold, which is not available in all regions.”

“We need at least 1,200 to 1,500 hallmarking centres to meet the demand that will come about if the government moves ahead with the January deadline,” he added.

Hallmark centres underused

However, Harshad Ajmera, President of the Indian Association of Hallmarking Centres, refutes this claim. “Nearly half the capacity of hallmarking centres is underutilised,” he said. “We hallmarked 3.5 crore pieces of jewellery in FY 2015-16 and 3.16 crore pieces in FY 2016-2017,” he added.

Ajmera dismisses claims of inadequate hallmarking infrastructure as unfounded. “On an average, in 475 centres, we processed 221 pieces of jewellery every day over a 300-day period. But our capacity is of around 2,000 pieces per day at each centre,” he noted.

According to Ajmera, the demand for hallmarking is limited to certain pockets. He said, “There are only six or seven major centres of jewellery production in India, and there are an adequate number of hallmarking centres in those places.”

For a phased rollout

But both Ajmera and Mehta feel the need for a phased rollout of the mandate on hallmarking.

Mehta said, “We have written to the Ministry stating that the mandate should be carried out in a phased manner. Initially, it could be rolled out in places where there are hallmarking centres. Jewellers must be given a window of at least three months to clear their existing inventory and bring it in line with the defined carats and get them hallmarked.”

Ajmera said, “The government must mandate hallmarking in phases if it is to ensure a successful rollout. It can begin from the metros, move on to major cities and then be rolled out nationwide in order to allow jewellers enough time to process the gold.”

But between them, opinion is divided on the merits of self-certification by the jewellers.

Mehta said, “Instead of third-party hallmarking, the government must allow jewellers to self-certify their jewels.”

But according to Ajmera, allowing self-certification will defeat the purpose of hallmarking. “What is the sanctity of this self-certification? It takes six to seven hours to verify and hallmark a piece of jewellery. The jewels are already claimed to be of a certain grade while applying for the hallmark, but if we don’t vet it then, how can consumers be assured of quality?”