Why Does India Need a Gold Exchange?

A government official has recently floated an idea of establishing India’s first Gold Exchange which would be made available to all types of bullion dealers, refineries, jewelers individuals and temple trusts also.

Mr. Shaktikanta Das, Secretary of Economic Affairs in Finance Ministry, while speaking at the 3rd International Bullion Summit in Mumbai mooted the idea of the Exchange and has asked all stakeholders of the bullion sector to come out with a concrete proposal for this purpose. It may be noted here that such gold exchanges have played a major role in developing the bullion sector in Turkey and China.

Mr. Das also expressed concern over gold prices and its forward trading. He said, “There are apprehensions whether it would have an inflationary impact on the gold prices. But gold prices are internationally determined, so I don’t think local trading would significantly alter global prices. This is one concern which needs to be addressed.”

An industry report which was published last year, had requested the Indian Government to consider setting up such an exchange. The report says, “Besides being responsible for all regulatory aspects of gold dealings, it (the exchange) would also undertake price fixing of gold on day-to-day basis for the domestic market, work on standardization matters, attend to policy advocacy and promote product innovation.”

As soon as the industry received the proposal of setting up of a gold exchange, leaders here have started sending their opinions about this idea. A bank dealer says, “There is big disparity in trade at present due to gold smuggling. Unless the Indian Government brings down the high import duty and smuggled volumes come down, there is little scope for regulated physical gold trade. Why someone would pay the market price when he could get gold cheaper gold in black market?”

One of the office bearers of All India Gems & Jewellery Trade Federation (GJF) says, “The proposed exchange would facilitate smaller jewellers to procure gold at a market determined price.” But many experts feel that the independent gold exchange is need of the hour. Mr. Mohit Kamboj, President of the Indian Bullion and Jewellers Association (IBJA) says, the association is eager to launch a gold exchange in next six months. “We are in dialogue with the authorities and the participants. If things work out, we would have our own gold exchange in next six months,” he added.

India’s Multi Commodity Exchange (MCX), which does the highest trading in gold with a 98% market share, also showed its eagerness to consider such a proposal when its full details and fine print are available. However some leaders feel that said more changes are needed before such a plan can work.

Although, the Indian Government has not floated any blue-print on this but experts here feel that the proposed exchange would most likely be an electronic platform for giving and taking physical delivery, like a spot exchange where agro-commodities are traded but under strict regulations. Such a platform would provide enough transparency and establish a price benchmark in the market. If at all this idea is materialized, it would channelize thousands of tons of gold lying idle in the domestic market and give easy access to the bullion dealers and jewellers alike.

Posted by Suresh Chotai