India Ready to Introduce National Gold Policy

goldThe Indian government has been trying out various measures to control its ever-increasing imports of gold since last couple of years but in absence of a comprehensive national gold policy, all these measures have not yielded the expected results. Many industry leaders and trade bodies like World Gold Council (WGC), Federation of Indian Chambers of Commerce and Industries (FICCI) and Associated Chambers of Commerce (ASSOCHAM) have time and again recommended the government to frame a national gold policy.

It seems now that the government has taken into consideration the recommendations of the industry and as a result the government may frame a National Gold Policy soon. Besides, it may also establish a Gold Board for managing import-export, develop accredited refineries, drive gold monetization actively and introduce compulsory quality certification of gold.

The WGC had initially suggested framing a gold policy in 2014 to help mobilize and monetize an estimated 22,000 tons of gold lying idle with households and temple vaults into productive use of economic development. “I feel that discussions on gold in India must move beyond gold import curbs and must focus on how this industry can fulfill its vision to make a major contribution to the country’s prosperity in the next five years. We (India) should support this vision by creating a favorable eco system which deals with gold as a fungible asset category, reflecting our cultural and economic significance. We must find ways of mobilizing and monetizing the household savings now imbedded in gold stocks through the formal financial sector for the benefit of the economy as a whole. It’s now hi-time to re-engage all stakeholders to develop a comprehensive long term gold policy which is affiliated to India’s growth objectives,” Mr. Somasundaram PR, MD of the WGC (India) had commented two years back.

Accordingly, the government is expected to set up the Gold Board under the National Gold Policy, and alongside work on development of Gold Exchanges. India’s Finance Ministry held discussions late last year with stakeholders of the industry and sought their views on a National Gold Board, a body on the lines of the Financial Stability and Development Council.

At the same time, India Gold Policy Centre (IGPC) at Indian Institute of Management, Ahmedabad (IIMA) recently boosted the government’s initiatives to introduce a gold policy by releasing a study on the viability of a Gold Spot Exchange in India by Prof. Joshy Jacob and Prof. Jayanth R. Varma of IIMA. One of the key findings of the study is that a Gold Spot Exchange is exceedingly viable and would lead to efficient price discovery, assurance in the quality of gold, active retail participation, greater integration with financial markets and greater gold recycling. The study involves a survey of all important stakeholders of the industry including jewellers, refiners, bankers, commodity exchanges and other participants in the value chain. It also examined the Gold Spot Exchanges in Turkey, China, Singapore and Dubai.

The study also suggests that the Gold Spot Exchange should offer a wide range of contracts to meet the needs of the gold industry like a) Domestic spot gold contract, b) Global spot gold contract denominated in USD based on delivery outside the domestic tariff area (DTA), c) Dore swap contract and d) gold lending and borrowing mechanism (GLBM). Within the limits of capital control regulations, both the domestic and international contracts on the Gold Exchange must be open to the broadest range of participants.

Gold-related policies are also expected to help the Gold Monetization Scheme (GMS) launched by the government late last year.

Posted by Suresh Chotai