Indian Gold Book:Indian Gold Book - Gold Bars Worldwide

ROLE OF INDIAN GOVERNMENT
GOVERNMENT PERSPECTIVE
The former Deputy Governor of the Reserve Bank of India, Dr Y.V. Reddy, delivered 3 significant speeches on India’s
national gold policy at conferences in New Delhi organised by the World Gold Council. They are available on the RBI’s
website (www.rbi.org.in).
Gold in the Economic System. 28 November 1996. Traces the development of India’s gold policy since 1947.
Gold Banking in India. 2 August 1997. Reviews India’s gold policy options.
Evolving Role of Gold - Recent Trends and Future Direction. 21 March 2002.
In the most recent speech, Dr Reddy identified 5 broad gold policy areas that are under review.
Import of gold
Further rationalisation may result in large institutions such as banks becoming the sole official importers of gold bullion. The
NRI scheme that allows individuals to import gold may be withdrawn.
Gold jewellery exports
Some restrictions on gold jewellery export-oriented units may be removed. For example, customs bonding may no longer
be necessary.
Market development
The establishment of a Gold Exchange in due course has merit. The feasibility of introducing Futures Trading in Gold is being
examined by the Forward Markets Commission.
Hallmarking
The hallmarking initiative needs support. Banks, for example, should consider giving preferential treatment to Certified
Jewellers by prescribing different margins for loans extended against the pledge of gold with hallmarking and that without.
Research and policy studies
The RBI is in favour of further studies covering 3 broad areas: “Gold reserves and their role in the forex market; the
development of gold markets in conjunction with financial markets; and the macro economic implications of gold policy and
gold markets, especially in the context of financial savings”.
OBSERVATIONS
India’s pragmatic policy since the repeal of the Gold (Control) Act in 1990 appears to have served the country well.
Customs duty has generated substantial revenue.
Since the NRI scheme was initiated in 1992, customs duty has generated around Rs 106 billion (US$ 2.6 billion).
India is now paying a lot less for imported gold.
The domestic cost of gold imported officially (excluding Customs duty) now matches the international price. This benefits
all gold consumers. During the 1980s, unofficially imported gold was traded at an average premium of 47%.
The quality of gold jewellery has improved significantly.
Although the fabrication of undercaratage jewellery remains widespread, notably in suburban and rural areas, most urban
retailers at the top end have already raised their caratages whether acting as a Certified Jeweller or not. The hallmarking
scheme is likely to see most leading retailers hallmarking much of their jewellery over the next 5 - 10 years.
Gold jewellery exports have surged.
The value of gold jewellery exports has surged from around US$ 300 million in 1991 - 1992 to around US$ 1.1 billion in 2000
- 2001. Over the same period, value addition above the cost of gold used has grown from 24% to around 60%, rising from
US$ 73 million to US$ 653 million.
Unofficial imports have been curbed.
Unofficial imports now represent a small proportion of total gold imports. Since the introduction of the OGL scheme in 1997,
unofficial imports have accounted for around 13% of total imports. Smuggling is barely profitable, and fraught with risk,
when officially imported gold (after Customs duty and State sales taxes have been paid) is traded at only 7% above the
international gold price.
The only failure to date has been the Gold Deposit Scheme, the reasons for which are clearly understood by the RBI.
Potential depositors are aware that gold jewellery is worth a lot more than the value of its gold content when melted down,
that the rate of return on deposited gold is relatively low, and that there is little financial incentive for banks to promote the
scheme.
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AN INTRODUCTION TO THE INDIAN GOLD MARKET