Friday, December 23, 2022

What and how one trade matters

 What and how one trade matters

Being a keen observer of the social fabric of India, I have observed the two communities very closely from my childhood, one the vegetable vendors Devipujaks (OBC) and another the Goldsmith Baniyas the traders of precious metals. Both are trading; buying goods, adding profit margin and selling. But the former live  below the poverty line or little above it as lower middle class life while the later are rich and getting richer. Their standard of living including their outlook, clothes, language, attitudes, habitats, clearly marked them in two groups of haven’t and haves. 

The vegetable vendors trade vegetables and manage their household and social expenditures from a small profit of the retail trade of different vegetables. The capital investment is negligible and the business risk is zero as whatever they buy, sell the same day. As the profit is in few hundred rupees per day, they remain at the same standard of living or may go down below poverty if vices like alcohol occupies the adult males. They have the same skill what the goldsmiths have but the item for trading they have selected is perishable and cheap though it is essential commodity for human life. There profit is in pence. As there are many sellers therefore the consumers taking advantage of the competition and the perishable nature of the goods bargain a lot and pulls down the profit margin of the vendors. The concept of cheating is absent in this world. There used to complaints regarding weight but electronic balance has removed them. 

Let’s come to the goldsmith market, the place of smart trading and smart play. The game of pricing, weighing, making and making charges make the customer a loser always. But happier he smiles and the market shines. 

Cadium costs ₹1/gram, copper costs ₹0.8/gram and silver costs ₹64/gram while the Gold (916) costs ₹4860/gram. Imagine the effect of the mixing of silver or copper in the Gold and the welding of the ornaments by cadium and priced at the rate of Gold! 

As our new generation wants everything new in design, let’s take an example of replacing of gold ornaments with the new ornaments. 

A person went with 100 grams of old ornaments of 916 mark (91.6% gold) to sell and buy the new ornaments of the same weight from a goldsmith’s shop. The goldsmith will first weighs the old ornaments and considering it let’s presume 916, will cut 8.4% weight from the total weight to compensate the impurity in the ornaments. Thereafter, he will calculate his buying price @₹48600 and get the amount of buying ₹4.45 lakh (91.6x4860). Did you catch the play? Wait. 

The customer now has selected the new ornaments of 100 gms and asked the goldsmith to make the bill. 

The goldsmith makes the bill as following.

1) Gold ornament price 916: 100x48600=4.86 lakh 

2) Making Charge (₹600 to 1500, let’s take average of ₹1050/gm): 105000

3) GST on Gold (3%): ₹14580

4) GST on making charges (5%): ₹5250

Total: ₹ 6,10,830. 

Minus ₹ 4,50,176


Net payment ₹1,65,614

The consumer got back the same quantity of gold in new design by paying a round figure ₹ 1.65 lakh as the shopkeeper won’t take that ₹614 for maintaining good relationship. The pain of paying extra ₹1.65 lakh vanishes in a cup of tea or cold drink and saving of ₹614! 

As the transactions of gold are done in cash mostly, therefore, the customer may not insist for the bill to save GST of ₹19830. The goldsmith if playing with the bill books, may and may not pay GST if charged, or pay for some, skip for some. Let’s exclude the GST part and see the profit/gain of a goldsmith. 

The gross profit was ₹1.65 lakh. Of which he has paid ₹38,400 as making charges to the goldsmith worker who has charged ₹400/gm for the weight @96%. We may consider 20% of the profit for the rental of the shop and manpower and other recurring costs, still his gain comes to around ₹1 lakh from that one transaction of exchanging 91.6 gram gold. It is also likely that he may hold the old ornaments and make them new by touching and polishing and sell them by adding making charges etc, to the new customers who are searching for the old designs. Think about his profit margin of selling gold ornaments without exchange and think about the sale of fashion items with much higher making charges. He can be happier with the visits of few customers a day. There are Pandits who are promoting their sales by declaring auspicious days and time to buy precious metal as well as making muhurtas of marriages and other social events. It is not चाँदी चाँदी but सोना सोना of the trading business. The goldsmith will make his showroom more attractive and will open new showrooms with branding his trademark. 

Did you get the smart play of the goldsmith in the story? 

Let’s analyse. He deducted 8.4% weight from the total weight of 100 grams of the old ornaments as impurity value. Therefore the remaining 91.6 grams was the pure gold. But he has calculated the price @4860/gm, the price of the 916 gold, not the pure gold. He was supposed to calculate the value @₹5306. There is clear profit of ₹446/gm. He pays making charges @₹400/gm, but charge ₹600-1500 from the customers, making it another profit of ₹200-1100/gm. In present case he has earned ₹650/gram from the making charges. When he sells, he sells 916 gold ornaments, he is charging rightly at ₹4860/gm but the mixing of 8.4% costing @₹1-64/gm also get priced @₹4860/gm. 

One has to look at the capital investment in the business and a skill to convince the customers to buy their products. But the model is so rich that one can start with lakh and turn into crore. Who could prevent them from becoming richer? It’s high profit margin model of trading advantageous to the goldsmith. The goldsmith community is making good profit but you have hardly heard of a customer who has cracked their calculations, argued out and got it in his favour by paying right price. 

In Silver, it is further worst as the mixing of silver with zinc and cadium is in the ratio of 45:55 (आटे से नमक ज्यादा) but it is sold charging the price @ 916. 45% is sold at the rate of 91.6%. Other calculations of the making charges and other costs the same like gold narrated above. 

It’s a business where buying is profitable and selling is of course profitable. चित भी मेरी, पट भी मेरी, अंटा मेरे बाप। They tax the endearment of ornaments of the customers and acquire wealth. 

You are meeting the vegetable vendor daily and the goldsmith occasionally. 

Whom do we support? The vegetable vendors or the goldsmiths?

With whom do we bargain? 

With the vegetable vendor or the goldsmith? 

We like to argue with the vegetable vendor the most. 😁


18 December 2022


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