India's gold industry to strike in protest over crackdown

India's gold industry is planning a one-day strike next week in protest over government efforts to control smuggling, as moves to curb imports fuel illicit trade in the world's second-largest market for gold.

India Bullion and Jewellers' Association has asked the entire gold industry - from bullion dealers to jewellers and wholesalers - to shut up shop for one day as a symbolic protest, and expects 500,000 stores to participate.

The decision follows a series of raids where government officials have demanded dealers prove all gold bars were imported through official channels and seized unrecorded stocks.

"The bars are always imported by the banks and some of the bars imported by the banks are 10, 20 years old," said Surendra Mehta, secretary of the association. "How do bullion dealers prove these bars are imported on such and such date?"

Large, listed jewellers such as Gitanjali Gems will participate in the strike. "If the whole trade is going to take part, we will take part too," said Mehul Choksi, managing director of Gitanjali Group, who estimates that the company's recent gold jewellery sales have dropped to 30 per cent of what they were a year ago.

"By increasing the duty, a lot of gold is coming illegally and there are a lot of raids all around."

Although Monday's strike is unlikely to have much economic impact, it is a sign of trouble in a sector that is crucial to Asia's third-largest economy. The gems and jewellery industry is worth an estimated Rs2,510bn ($41bn) a year, and provides some 2.5m direct jobs, according to a 2013 report from the Federation of Indian Chambers of Commerce and Industry and AT Kearney, the consulting company.

India's jewellers complain that a shortage of gold has crippled business. Official imports have ground to a near-halt, the country has almost no gold mines and supplies of scrap gold satisfy a negligible part of their needs.

The shortage follows a series of recent government measures to limit these non-essential imports as India's current account deficit soared, fuelling a depreciation in the rupee last year.

New Delhi has raised import duties on the yellow metal to 10 per cent and introduced quantitative restrictions, whereby one-fifth of all gold imported into the country must be set aside for export.

As a result official imports of gold have dropped, reaching just $3.8bn in the third quarter of 2013 - down from more than $15bn per quarter at the beginning of the year - according to figures from ANZ Research. The price of gold has fallen 15 per cent over the past 12 months to about $1,340 a troy ounce.

While official inflows have dried out, unofficial sources of the precious metal have grown rapidly, with between 150 and 200 tonnes of contraband gold entering India in 2013, according to estimates from the World Gold Council, an industry lobby group.

As India's current account deficit narrows, finance minister Palaniappan Chidambaram has suggested that policies aimed at reducing gold imports may be rolled back.

Analysts at Ambit Capital, the Mumbai-based brokerage, expect that if gold prices remain stable, inflation slows and import duties are reduced to 8 per cent, gold imports will grow at an annual rate of 40 per cent in the next fiscal year, following a 40 per cent contraction in the current fiscal year.

Though estimates of the black market are difficult to find, there are other signs that smuggling is on the rise in India.

The ministry of finance in neighbouring Pakistan allows gold to be imported duty-free if it is used to produce jewellery for export. But in July, imports through this scheme were banned for 30 days as inflows grew dramatically, raising suspicions that the metal was being smuggled over the border to India.

A similar ban was put in place again in January, suggesting that the problem persists.

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