The new Gold policy has been in the works since last year. It was expected to be announced before the elections. But that did not happen.
Considering factors like lack of enthusiasm for the Gold Monetisation Scheme, India’s over ground Gold holdings, and issues of Gold smuggling in the wake of increase in import duties, it seems imperative for the Modi government to quickly announce their new Gold policy.
With Narendra Modi and his National Democratic Alliance (NDA) Government being voted back to power, the Gold sector, as a whole, is discussing the need for a new Gold policy. In the works for nearly a year now, the new policy is much needed for quite a few reasons, including to tackle loss of revenue to the Government.
Swarajya looks into the factors that make the new Gold policy a must as soon as possible.
Factor 1: On 17 April this year, a day before the second phase of elections to the Lok Sabha, Election Commission officials seized 1,389 kg of Gold from a van near Tiruvallur. Later, the Tirupati Tirumala Devasthanam (TTD) claimed that it owned the Gold and that it had been deposited with the Punjab National Bank (PNB).
TTD had deposited the Gold for three years for a 1.75 per cent per annum interest under the Gold monetisation scheme (GMS). With the deposit period getting over, TTD decided to take back the Gold. The Tirupati Tirumala Devasthanam has deposited over 8,000 kg of Gold with various banks under the Gold monetisation schemes to earn interest. The interest offered by PNB was the highest.
TTD has taken back all the Gold it had deposited with the banks under GMS. The scheme, introduced in 2015, was envisaged by the government to help earn interest on unused Gold in households. GMS has short, medium and long term deposit schemes with the rate of interest upto 2.5 per cent annually.
The scheme did not attract the expected interest from the public due to lack of adequate hall-marking centres and incentives for banks. Not many religious institutions came forward to deposit their Gold. With interest rates being low, probably TTD thought it would be better to take back the Gold and wait for a better offer, or more importantly, see what the new Gold policy — expected to be announced by the new government soon — would have to help it earn more.
Factor 2: On 2 June, Customs Department officials had an interesting case to handle. They detained a person returning from the Gulf for attempting to smuggle Gold hidden as a motor accessory part in a mixer-grinder.
Gold smuggling has been on the rise since 2013 when the United Progressive Alliance (UPA) government hiked import duty to 10 per cent. An additional three per cent sales tax on bullion trade further complicated things.
The World Gold Council, a body of Gold producers, has estimated that nearly 100 tonnes of Gold was smuggled into the country last year. The American Bullion Association says that Gold is the fifth most smuggled item globally. Nearly 750 kilograms of Gold is being smuggled into India every day. Smuggling of gold quadrupled after the import duty hike in 2013.
Smuggling of Gold into India and its illegal trading is denying the government its revenue through taxes. The loss of revenue to the Government runs into crores of rupees. According to Federation of Indian Chambers of Commerce and Industry (FICCI), under-invoicing of Gold consignments or what it terms technical smuggling, too, denies the Government a considerable amount of revenue.
Factor 3: India has the largest Gold holdings above the ground in the world. The World Gold Council estimates that Indians could totally be holding anywhere between 23,000 to 25,000 tonnes of Gold in various forms, particularly jewellery.
In India, Gold is stored by families as they see it as an asset that they can rely in times of emergency. Gold jewellery can be sold or pledged to meet any emergency. Storing gold is seen more safer than having cash in hand.
On the flip side, Gold storage have helped black money hoarders. The good news, though, is that Indians no more love Gold as they did before; it has been replaced by electronics. But what Gold buying by Indians has led to is an imbalance in the current account deficit with the country spending more on imports compared to what it receives through exports.
Factor 4: India is the largest Gold consumer and importer in the world. Last year, it imported 759 tonnes, down 15 per cent compared with 2017.
This apart, FICCI suspects technical smuggling could contribute another 10 to 20 per cent, taking total imports to nearly 1,000 tonnes a year.
Indian bullion industry is one that has good export prospects, particularly handmade jewellery, in view of the talented artisans that the country has.
This gives the bullion industry enough scope to provide employment to a good number of people and thus help the country in its growth and exports. It already provides employment to over 2.5 million people. There is also considerable scope for value-addition in Gold exports.
The four factors highlighted above are the main reasons why the central government needs to announce a new Gold policy quickly. Expectations are that the newly appointed Finance Minister Nirmala Sitharaman could announce it in her maiden Budget on 5 July.
A much-discussed topic, the new policy has been in the works since last year. It was expected to be announced before the elections. The announcement, however, didn’t take place before the Lok Sabha elections.
Expectations from the new policy
The new policy is expected to see import duty on Gold being cut from the current 10 per cent to four per cent, thus neutralising smuggling of the precious metal. The GST and IGST on Gold could also be either reduced or done away with.
The GMS is likely to be revamped and probably include incentives for banks, a higher interest rate and some lure for religious institutions to deposit their Gold with the banks. The sovereign Gold bond scheme, part of GMS, could also undergo some changes.
The policy will have features like setting up a Precious Metal Board, which has got the Finance Ministry’s nod, besides starting bullion exchanges across the country to make Gold “an asset class”. The government could come up with various other measures to help the bullion industry, including government duty-free benefits.
In addition, banks will now be able to buy Gold from local refiners, who produce over 200 tonnes of Gold annually, if they get the accreditation of the Bureau of Indian Standards. Overall, the new policy, which is reportedly ready, could get the Cabinet nod before it is introduced in Parliament in the form of a bill.
One hopes the government has also addressed other related issues of the bullion industry such as tackling price and currency volatility, imports and insurance. Expectations are now for a comprehensive policy by the Narendra Modi government that will help the industry, investors, exporters, banks, traders, consumers and manufacturers — in short, a policy that would balance the interest of each sector. A new Gold policy is the call of the hour that needs immediate attention.