The Reserve Bank of India (RBI) announced on May 19, 2023 that Rs 2000 notes have served their purpose of mitigating the 2016 demonetization shockwave, and as part of the clear note policy, will be phased out. The notes remain legal tender even after September 30, 2023. The government believes that notes of such high denomination are uncommon in transaction, and there are sufficient alternatives available in lower denominations to fuel the gap. Here’s taking a look at what the gems and jewelry industry of India opines about this decision.
Marginal Increase in inquiries, Cash on Delivery
Pawan Gupta, Director, PP Jewellers by Pawan Gupta, believes that there will be a more measured response, with individuals actively seeking out alternative investment options and taking proactive steps to secure their wealth. "After the withdrawal of the Rs 2,000 notes, we have observed a notable increase in inquiries for gold and silver jewelry. The increase in inquiries for jewelry has been significant, with a noticeable rise of approximately 15-20% compared to previous periods. We are receiving more cash as compared to online transactions. This increased interest indicates a shift in consumer behavior and a recognition of the value and stability offered by precious metals,” he says.
Youhan Noria, Chief Business Officer, Estele Accessories, a fashion jewelry brand, states that although there has been no uptick of notes received in stores, there is a marginal increase in cash on delivery orders on their website. “While we have witnessed a rapid decline in usage of the notes in the past 24 months, we do expect real jewelry players to see a spike in purchases in the short term,” he says.
Eshwar Surana, Managing Director, Raj Diamonds, Bengaluru agrees that cash transactions have sharply risen, causing rush in the market with a sense of urgency to safeguard monetary value by investing in jewelry. “People will aim to sidestep the need to exchange or deposit Rs 2,000 notes at banks and will come forward to spend on luxury items such as diamond jewelry. Hence, there will be a short-term increase in demand as people and we expect a 20-30 percent increase in sales in the near future. It will also help growth a bit because consumption is expected to go up,” he says.
Stricter KYC Norms for In-store Transaction
Tackling a market rush of Rs 2000 notes demand stricter KYC norms, and PN Gadgil And Sons is ensuring that those who pay for their purchases with Rs 2000 denomination notes will have to sign the forms, which will bear the names and other details of the customers. “The notes will continue to be legal tender, and, as the end receivers, we might have to answer questions about the source of receipt against the currency, especially when we deposit the same post-September. This form would indemnify us in the future. In the past four days, we have seen people coming in with Rs 2000 notes more than usual. After the declarations of the RBI, we have started taking these notes and expect some incremental sales,” maintains Aditya Modak, CMO, P N Gadgil & Sons Ltd.
Rohan Sharma, MD, RK Jewellers, believes that the long-term impact of the Rs 2,000 note withdrawal on the jewelry sector will depend on consumer preferences, economic conditions, and the continued adoption of digital payment methods. “The impact is not as significant as during the 2016 demonetization. The notes remain legal tender, which means there is no urgency or immediate need for consumers to convert them into jewelry or other assets. Additionally, the price of gold has risen significantly since 2016, making it less attractive as an investment option for middle-class Indians compared to when prices were lower,” Sharma says.
Digital payments, a Strong Alternative
Saiyam Mehra, Chairman, GJC, is also of the same opinion and considers implementation of GST and BIS hallmarks as fillips for jewelry manufacturers to organize themselves at the earliest. “Large-denomination currency notes are normally required to deal in cash, which has now become insignificant in India’s jewelry industry as consumers are more inclined towards digital formats. Therefore, the withdrawal of Rs 2000 currency notes will not have a major impact on India’s gold and jewelry business,” Mehra concludes.
Pic credits: By Reserve Bank of India - https://paisaboltahai.rbi.org.in/, GODL-India, https://commons.wikimedia.org/w/index.php?curid=70482444
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