Bullion Board Seen by Council as Way to Manage India Gold DemandSwansy Afonso
India, the world’s largest gold consumer after China, should start a bullion board to regulate trade and a spot exchange to offer uniform prices across the country, the World Gold Council said.
The board should manage imports, encourage exports and boost infrastructure for the industry, while the spot bourse would create a national pricing structure derived from the London fixing, the council said today in a joint report with the Federation of Indian Chambers of Commerce and Industry, an industry group.
India’s bullion imports surged this financial year as tax increases and a rule linking shipments to re-exports failed to curb demand among jewelry buyers and investors. The solution to meeting Indians’ enduring appetite for the precious metal lies in making better use of the gold already in the country and not restricting shipments, according to P.R. Somasundaram, managing director for the council in India.
“Demand for gold in India is interwoven with culture, tradition, the desire for beauty and financial protection,” Somasundaram said in a statement. “It would be futile to control gold demand knowing how much the passion for gold drives savings itself.”
A long-term “India Gold Policy” should encourage gold-based investment products and support the country’s economic priorities and find ways of mobilizing and monetizing 22,000 metric tons of gold in Indian households, he said.
Indian imports jumped to 710 tons between April 1 and Nov. 15, compared with 640 tons in the 2013-2014 financial year, a finance ministry official, who asked not to be identified in line with departmental policy, said Nov. 28. The surge in shipments and rising smuggling spurred government to scrap the re-export rule known as 80:20 last month.
At present, the government controls bullion purchases through import tax and limiting direct shipments to select banks and trading companies nominated by the Reserve Bank of India. Shipments from overseas are key to the local industry as the nation imports almost all the bullion it consumes.
India’s current-account deficit, the broadest measure of trade, widened to $10.1 billion in the July-September period, the largest since the quarter through June 2013, as exports slowed and gold imports surged, the central bank said yesterday.
The council said the proposed bullion board should also refinance institutions lending against gold as collateral, help create accredited assaying centers, draft guidelines for standardization and develop policy to assist monetization of domestic inventories.
The government needs to develop accredited refineries in line with international standards, allow banks to use gold as part of their liquidity reserves and revive bullion-deposit plans to cut reliance on imports, according to the report.