New Delhi: The government should come up with a "national gold policy" focusing on setting up its Exchange and launching of several investment products like gold savings account to put an estimated 22,000 tonnes of idle gold assets into active use, a WGC-FICCI report said Tuesday.
Among others, the government should also look at establishing a Gold Board for managing import-export, develop accredited refineries, drive gold monitisation by incentivising banks and introduce compulsory quality certification of gold, it said.
"Looking back, gold consumption has averaged 895 tonnes per annum over the past five years, equivalent to just over 4 percent of current stockpiles. This shows that, if even a small percentage of household gold were monetised, the impact on Indian imports of gold would be substantial," said the report prepared jointly by the World Gold Council (WGC) and industry body FICCI, released here today.
Commenting on the report, WGC Managing Director Somasundaram PR said, "It is imperative to find ways of mobilising and monetising 22,000 tonnes of gold in Indian households to fund economic growth. The need of the hour is to re-engage stakeholders to develop a long-term gold policy."
Given that Indian consumers do appear willing to consider monetising their gold assets, the report said a strong infrastructure and standardisation of price and quality are essential steps in the process.
There is a need to incentivise banks to engage in the process, revitalise the gold deposit scheme and encourage launch of other gold-backed investment products, it said.
At present, financial products linked to gold have been poorly marketed. Many consumers are unaware of them and they are not understood properly.
"If banks were able to include gold in their reserve calculations, they would be financially incentivised to innovate, market and explain gold-based products," it said.
The report said there is a need to revitalise the Gold Deposit Scheme (GDS) as the survey indicated that consumers would be willing to deposit their gold for interest.
"To date, however, few have done so. Obstacles include the paucity of banks offering the GDS, the size of required deposits, the way in which customers are repaid and timely valuations," the report said.
Developing and enhancing current gold infrastructure will facilitate the valuation process and banks also need to reduce minimum deposit amounts and consider repaying consumers in cash, the report added.
It also suggested introduction of gold-backed financial products like gold savings account that are easily understood. Gold savings mutual funds should include income tax benefits, much like equity linked savings schemes, the report said.
Gold-backed pensions and insurance products could also be introduced, thereby monetising gold?s central role as a long term wealth preservation asset, the report added.
Stating that a robust infrastructure is required for a fully functioning mobilised gold market, the report said there is a need to set up a Gold Exchange to create a national pricing structure for gold, derived from the London fix.
"The buying or selling of gold in India takes place through many channels, formal and informal. ...An exchange would also improve price transparency and assess gold supply and demand. A spot exchange for gold would also involve the construction of high quality storage and vault," it said.
The report suggested setting up of a 'Gold Board' to play a crucial role in formulating a balanced and inclusive gold policy that is both sustainable and dynamic.
Such a Board would manage the import of gold, encourage exports, facilitate infrastructure development and ensure the Indian gold market functions to maximum effect, it added.
Suggesting the government develop accredited gold refineries, the report said that such refineries would play an essential role in well-functioning markets.
Dubai has recently announced the setting up of a gold refinery, largely to cater to Indian gold demand. It would seem logical to focus on raising the standard of India's own gold refineries. Dependence on imports for top quality gold contributes to the current account deficit in India, the report added.
It also stressed on guidelines for compulsory quality certification of all forms of gold.
"While many larger firms and jewellers in India certify their gold products, smaller shops do not.
Compulsory quality certification will encourage accountability, foster an environment of trust and establish an audit trail between manufacturer, retailer and purchaser," it said.
Among others, the report recommended that the government develop 'Branded India Gold Coins', set up gold authorised dealers and have more active marketing strategy for Indian handcrafted jewellery to boost exports.
Gold is the second largest import item for India after petroleum. The government has imposed several restriction to curb imports of gold to contain current account deficit (CAD).
