MUMBAI — The jewelry stores in India’s biggest bullion market were empty Monday as the nation’s gold trade reeled from the impact of the ongoing currency crunch.
Gold dealers said business, which should have been booming as the country enters its wedding season, has dropped off precipitously since the government’s surprise announcement that it was scrapping its larger currency notes and replacing them with new bills. India is the world’s second-largest consumer of gold.
In the hours after last Tuesday’s bombshell, customers had flocked to jewelers to spend the soon-to-be-scrapped currency before a midnight deadline, bringing “bags of money,” and paying 67 percent above the going rate for gold, said Prithviraj Kothari, the director of RiddiSiddhi Bullions Ltd.
Then they disappeared.
“People are panicking. They don’t know what’s going to happen next,” Kothari said in his windowless office high above the jewelry souk’s noisy lanes, where the walls had photos of Kothari posing with Bollywood stars and the prime minister. Somewhere in the bowels of the place was a safe stacked with gold bars.
For the sixth day, people stood in long bank lines to exchange or deposit old currency notes in the wake of the government’s demonetization plan, designed to target counterfeiters and legions of Indians who have undeclared income stashed away, so-called black money. About a quarter of India’s gross domestic product comes from the shadow economy, according to the Finance Ministry, and few Indians pay income taxes.
Prime Minister Narendra Modi — who was swept into office with a vow to end corruption — asked for the country’s forbearance, couching the move as a fight for the “honest” citizen against those with “cash lying under the mattresses and in the sacks of the corrupt.” His government has tried to steer the cash-centric country toward bank accounts and digital payments.
“The people who have their vaults can shake governments. They are very powerful people. Should I be scared of such people?” Modi said at a rally Monday in the state of Uttar Pradesh.
“No!” the crowd roared back.
“I have your blessings. That is why I have taken on such a big fight,” Modi said.
Yet the surprise demonetization has caused havoc in the lives of many ordinary citizens, more than half of whom do not have a credit or debit card. ATMs continued to run short of cash, and it will be weeks before they are configured properly to dispense the new bills, officials said.
Parents cracked open their piggy banks, the sick deferred medical procedures, and others struggled to find ways to pay tea sellers, auto rickshaw drivers and vegetable merchants who take cash only. Civic offices, hospitals and gas stations were instructed to accept the old currency, but the edict has not always been followed, resulting in some panic, fistfights and even sporadic reports of looting.
The resourceful quickly found ways to adapt. Some asked farming relatives to deposit money for them — as agricultural income is exempt from tax. Villagers held their places in long bank lines with pairs of sandals. Brides and grooms were given decorated envelopes with cash IOUs.
Jewelers said that with the cash shortage and uncertainty, the few people who were buying gold this week were those who had imminent weddings. Income tax officers in Chennai and Pune raided some jewelers suspected of accepting the old currency and issuing forged receipts; other shops pulled down their shutters simply over rumors of raids.
Gold has for centuries been considered an auspicious metal in India, an important display of a family’s prosperity and a safe investment. Brides are often laden with gold bangles, necklaces and earrings — even in the poorest families. But now some weddings are being postponed or scaled down.
Pragati Shete, 30, an investment banker, said that she and her family had to buy jewelry for her brother’s bride on Saturday — $4,400 worth of necklaces, rings and earrings — on credit but that they never considered doing without it. “It’s a tradition we follow,” she said.
Siraj Ahmed, 49, who owns an event planning company in Mumbai, said the cash crunch had disrupted the lavish weekend wedding of his youngest son, 24, a chef. The family had to beg the family jeweler to accept a postdated check for their hefty buy of jewelry and pass the hat among the wedding guests to pay for the bus to and from the reception.
“It was the most embarrassing day of my life,” Ahmed said. “Modi’s decision is the right one, but the way they did it was wrong. They should have made sure all the ATMs were ready with [lower denomination] bills. In the way it was done, it has created a lot of problems for everybody.”
Most jewelers said they expected sales to resume within a few months, but overall gold imports — more than 900 tons last year, according to the World Gold Council — probably will fall this year because of rising prices and more stringent government policies, experts said.
“It’s a tough time for the gold industry,” Kothari said. “There is a lot of black money in the business, so the government is targeting us with new rules and regulations that make it difficult.”
The government has already added a new excise duty on gold, prompting a 42-day jewelers’ strike this past spring, as well as a requirement that anybody buying more than about $3,000 in gold jewelry must show a tax identification card. The government also began a program last year to monetize some of the $1 trillion worth of gold held by Indians by encouraging Hindu temples and private citizens to put their gold stores in banks and collect interest rather than keeping them locked away in vaults.
Rama Lakshmi contributed to this report from New Delhi.