Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

SUMMARY AND POSITIVE FINDINGS
Banks indicate that the bulk of their business is done through less than 50 secondary tier dealers around the country. They
feed the distribution chain that involves thousands of tertiary and lower tier dealers nationwide.
Banks
The Reserve Bank of India (RBI) has authorised 20 banks to import gold bullion: 12 Public Sector Banks, 3 Private Sector
Banks and 5 Foreign Banks. The report focuses on the 6 Indian and 4 foreign banks that were active importers in 2001.
Banks may not export gold, or hedge its value. All rely on consignment stocks from international dealers. Banks can sell
gold on an “unfixed” basis for up to 5 calendar days. The minimum quantity is normally 50 – 100 TT bars. None offer a
buy-back service. There are now 111 Gold Cell branches servicing customers in 34 cities in 16 States. Branches in cities,
where State sales taxes are low, tend to attract the bulk of imported gold.
Public Sector Undertakings (PSU’s)
Public Sector Undertakings (PSU’s) are Indian Government enterprises. 4 are authorised to import gold: MMTC, PEC, HHEC
and STC.
The gold-related activities of PSU’s are supervised by the Ministry of Commerce and Industry (not the RBI). Like banks, they
wholesale imported bullion to secondary tier dealers. Unlike banks, they can loan imported gold to domestic fabricators and
retailers. They can also sell “unfixed” gold for a longer period, normally 11 calendar days.
The PSU’s operate through 38 Gold Cell branches in 18 cities in 13 States. In 2001, they imported more than 100 tonnes.
Non-Resident Indian (NRI) Gold Import Scheme
The NRI scheme, an initiative of the Ministry of Commerce and Industry, was launched in March 1992. It enabled large
quantities of gold bullion, for the first time in decades, to be imported officially for the domestic market.
Under the scheme, NRI’s are permitted to import up to 10 kg of gold bars and other approved gold items as long as they
have been away for not less than 6 months. Prior to January 1997, the amount was 5 kg.
Over a period of 6 years, the scheme accounted for 56% of gold bullion imported for domestic use. Its role as a major
conduit for official gold imports fell away when authorised banks started importing gold bullion in November 1997. Since
1992, NRI’s - on their own account or on behalf of syndicates – have imported 1,352 tonnes.
Although recorded NRI imports have been nominal since 1999, less than 5 tonnes annually in recent years, the scheme
remains in operation.
Gold refiners
The refining of old gold jewellery and other scrap relies on more than 10,000 small refiners in cities, towns and some
villages. There are also 2 large refiners and 7 known organised refiners.
Coin fabricators
There are more than 1,000 coin fabrication units. Some fabricate more than 500 kg, most less than 5 kg, annually. Many
jewellery fabricators also have a capacity to mint coins. Few standard bars (minted and cast) are fabricated. In India, the
word “coin” is commonly used to describe a round medallion bought for savings or gift purposes. The category also includes
crude “duplicate” sovereigns (8 g and less and known as “guineas”) and minted quasi-coins in rectangular, oval and other
shapes. Most coins are retailed by jewellery retailers.
Gold Deposit Scheme
The scheme was launched in 1999. It is supervised by the RBI. Its declared objectives are to reduce the import of gold,
bring privately-held gold into circulation, and provide the public with an opportunity to earn income on their gold holdings.
The minimum deposit is normally 200 g. Deposits are lodged over 3 – 7 years. Annual interest payments are around
3 – 4%. Depositors are also offered other incentives. Interest earned from the deposit is exempt from income tax. Any
increase in the value of the deposit is exempt from capital gains tax. Its value is also not taken into account when
calculating the annual wealth tax.
The scheme is offered by 4 banks through 134 branches in 55 cities. In its first two years, around 8 tonnes of old jewellery,
bars and coins were deposited. The State Bank of India accounted for 90%.
GOLD JEWELLERY
The gold jewellery market is different from that in Western countries.
In India, gold jewellery is sold at fluctuating and low prices related to the prevailing value of its fine gold content. The
declared mark-up ranges from 5 – 25%. It acts as a tradable investment in that it is easy for consumers to sell or exchange
their jewellery at a reasonable price. While cultural, adornment and other factors influence the purchase of gold jewellery,
its parallel role as an investment for store of value, savings and money purposes is also relevant.
In Western countries, gold jewellery is sold at fixed and high prices ranging from 100% to 300% and more above the
value of its fine gold content. It is bought primarily for adornment purposes. While the intrinsic value of gold jewellery is
important, the investment dimension is not blatant. It is difficult for consumers to exchange or sell their jewellery. Only a
fraction of the original purchase price can normally be redeemed.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET