India Elections 2019: Demonetisation dulls appetite for gold, but traders stick with Modi

Three years on, jewellery business still affected by anti-black money drive

While the glitter of gold in India has dimmed in recent years thanks to what traders and jewellers in Uttar Pradesh describe as the “unfriendly” policies of the ruling Bharatiya Janata Party, those in the industry still say they back Prime Minister Narendra Modi.

Three years ago a federal policy to flush out so-called black money on which taxes have not been paid hit spending and growth.

Jewellers said they continue to feel the pinch of the government’s move to withdraw high denomination 500 and 1,000-rupee notes from circulation to make hoarded cash worthless and stamp out undeclared wealth.

An Indian customer looks at gold jewellery at a stall in the Asia Jewels Fair 2017 held in Bangalore on August 11, 2017.  / AFP PHOTO / MANJUNATH KIRAN

In the still largely cash-based economy where many don’t have credit cards and bank accounts, those selling big-ticket items have been among the hardest hit of the policy dubbed demonetisation.

“The working of our industry had come to a halt for a very long time because there was not enough currency to go around,” says Tanya Rastogi, who owns jewellery shops in the northern cities of Lucknow and Kanpur.

“There was a major cash crunch. It affected daily business because petty cash was scarce. We are still facing the impact. My industry is still trying to get over the after effects, she says.

Ms Rastogi says she’s sure this will have an impact at the ballot box. The second round of voting began on Thursday with polls opening across the south and in the disputed region of Indian administered Kashmir.

“It will definitely affect voting because there was a large demographic that was affected [by demonetisation] and is still impacted negatively. The government has not been very supportive to gold and jewellery sector,” she says.

Tanya Rastogi, owner of Jugal Kishore shop attedning coustomer at her shop at Goel Market, Mahanagar in Lucknow, April 16, 2019. 

India is the world’s second-largest consumer of the precious metal, important in weddings and key celebrations, after China and people tend to pay with cash and not bank cards.

The country is one of the highest cash-based economies in the world when compared to others in the emerging market, according to Indian central bank data.

Few have forgotten the long queues of people, including the elderly, waiting outside banks across the country in 2016 to withdraw cash because ATMs had run out of smaller denomination notes as the change-over began.

Statistics indicate that many small businesses were forced to shut down and those that survived cut jobs.

But despite the haphazard rollout of the demonetisation drive and the repercussions on their business, traders and jewellers remain in Mr Modi’s corner.

Even with the setback, they say they believe his election promise of 'Sabka saath, sabka vikas (Stronger together, progress for all)' will be fulfilled in the next five years.

Jewellers and traders see Mr Modi as a strong leader who takes tough decisions and credit his government for constructing a network of national and state highways, infrastructure that is crucial to the expansion of small and medium businesses.

“No industry was worse affected than the real estate and gold industry. But I do believe their intention was to help the overall economy,” says Ms Rastogi, who is on the board of the National Association for India Bullion and Jewellers.

“People will not only look at demonetisation but also at other issues the government has worked on such as infrastructure development,” she says.

Her view is shared by Himanshu Kapoor, who heads a bullion business and deals with bulk gold and silver sales.

Himanshu Kumar, trader talking cell phone at his shop at Chowk in Lucknow, April 16, 2019. 

“Yes, our business was affected and yes, the BJP decision has not been good for our business,” he tells The National. “But I will continue to support Modi because, in the larger scheme of things, this was done for the good of the country.”

But the electoral path may not be smooth for the BJP in Uttar Pradesh state where Mr Kapoor’s business is based.

The state, the largest contributor of seats to parliament, is viewed as key to helping form the government in Delhi.  The BJP won a whopping 71 out of 80 seats in Uttar Pradesh paving the way to winning a parliamentary majority in the last 2014 general elections.

“This time I don’t think they will get all those seats because demonetisation will have an impact,” Mr Kapoor says, adding that he thinks the electoral alliance of 20 regional opposition parties aiming to unseat Mr Modi will make inroads.

"The last time there was almost a clean sweep for the BJP. This time the gatbandhan (alliance) will have an effect on people who are upset," he says.

Quick to pick on the discontent among traders seen as Mr Modi’s traditional support base, opposition party leaders have made the demonetisation policy a rallying point in election speeches that regularly talk about job losses.

This is countered by BJP politicians who in their speeches point to India as the fastest-growing trillion-dollar economy in the world and one that is poised to become the fifth-largest economy when it overtakes the United Kingdom in 2019, as per International Monetary Fund projections.

But not all are so sure. Vijay Valecha, chief market analyst with financial services company Century Financials, says the political impact of demonetisation could be minimal.

“Demonetisation in which 86 per cent of the cash was withdrawn had a big impact on the economy,” he said.

“But whether this will be a factor in general elections remains to be seen since India is huge country where 900 million have the eligibility to vote and a multitude of national as well as local issues could be at play.”

Still, some irate jewellers have not forgiven the ruling party for denting their business and are looking at regional parties within the opposition alliance as an option.

“I know they say all these measures are good for the country and the economy but there should have been better planning,” says Shiv Seth, a gold trader who has seen sales slump in the north Indian town of Allahabad.

“We lost too much business and not so many customers are interested in big gold purchases anymore,” he said.  “I never thought this government would make business people lose their business. I’m really not sure if I will vote for the BJP this time.”