Budget proposal on agri commodities revives hope for BSE-IBJA gold exchange

A gold exchange was first proposed by the IBJA with the BSE as an equity partner

Finance minister Arun Jaitley's Budget announcement of setting up a committee to consider the integration of spot and derivatives commodity markets has revived the hope for a gold exchange. 

While the finance minister mentioned this proposal in connection with agricultural commodities, sources in the know say that the same analogy of integration will be applied to IBJA-BSE venture for gold exchange. Further, a meeting of government officials and some experts was held a few days before the Budget in New Delhi where the issue of permitting gold exchange was discussed.

A gold exchange was first proposed, sometime in end-2015, by the Indian Bullion & Jewellers Association with the BSE as an equity partner. The exchange was for trading in the spot market space, something that is already happening in Zaveri Bazar in Mumbai or Sarrafa Bazar in New Delhi. However, the finance ministry had asked the capital and commodity derivatives market regulator, the Securities and Exchange Board of India (Sebi), to consider the proposal. 

At present, banks and approved agencies, as well as status holder export houses, import gold bullion and 15-20  per cent of gold is imported in ore or unrefined form. However, imported gold is traded in different cities' bullion markets and further selling takes place from there. However, such trading is not recorded many times and is not transparent. If similar trading takes place on an electronic platform as proposed under the IBJA-BSE exchange, then the bullion business will become more transparent. 

The finance ministry has agreed to the proposal in principle. However, the ministry feels that the exchange business should be regulated and hence it has asked Sebi to look into it. Since Sebi doesn't regulate spot commodity trading, the proposal has been pending. 

Even after the proposal for integration of agricultural commodities trading, hurdles for gold will remain because agriculture commodities' derivatives trading falls under the ministry of consumers affairs while gold is a finance ministry domain. "However, if spot and derivatives, in principle, can be integrated at a national level trading with the electronic national agriculture market project in place, then a gold exchange could be close to reality," said the source. 

E-platform for Yellow metal on the horizon

• Gold exchange was first proposed by the Indian Bullion and Jewellers Association  

• Globally, Sanghai exchange is the biggest spot gold exchange

• In Budget, Finance Minister Arun Jaitley proposed integration of spot agri commodities and derivatives trading on electronic platform 

• At present, banks, approved agencies and export houses import gold 

• Imported gold is traded in bullion markets in different cities, but such tradings are not recorded

• If similar trading takes place on electronic platform as proposed under the IBJA-BSE exchange, the business will become more transparent