Need policies for promoting gold as investment of the country; shall suggest appropriate policies to standing committee. The domestic saving coming down drastically and the gold can play an important role in the economy of the country, said Dr Moily while inaugurating an ASSOCHAM 9th International Gold Summit & Excellence Awards.
Due to its high liquidity, financing against gold has caught on very well with banks. With huge base of stable and growing depositors coupled with larger number of loan seekers, banks have become a vibrant hub for gold activities-both for purchase as well as lending. The importance of Banks in this activity cannot be undermined and as the demand for gold grows, it will increase the importance and effectiveness of banking sector -largely for its trust as well as affordable lending rates.
He said that gold has been considered as a safe haven asset throughout history as it has been viewed as a store of value and a means of exchange for millennia. It is essentially a currency that cannot be manipulated by the interest rate policies of the government and has traditionally been used as a hedge against inflation or a falling dollar.
The sentiment towards the yellow metal remains very high irrespective of the rise/fall in prices and this love for the commodity has made the nation heavily reliant on imports of commodities. Petroleum crude accounts for about 34 percent of the total inward shipments, followed by gold and silver (12 percent of the total imports), machinery (10 percent), electronic goods (7 percent) and pearls, precious and semi-precious stones (5 percent), added Dr. Moily.
The Indian gems and jewellery sector is among the most competitive in the world, contributing to 65% by value, 85% by carat and 92% by number of pieces globally, and accounting for more than USD 36 billion of total Indian exports as in 2014-15.In recognition of the business excellence demonstrated by entrepreneurs who make up this industry.
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India is one of the largest importers of gold in the world. India accounts for nearly one-third of the total world demand for Gold. At more than 20,000 tonnes, Indian households hold the largest stock of gold in the world, noted Dr. Moily.
He also said that as per estimates, India is the world's largest buyer of Gold followed by China and both countries account for over half of the global demand. India has an estimated private gold stock of 20,000 tonnes worth $1 trillion, while it mines only around 1.5 tonnes. About 35% of the Gold demand in India is for investment purpose and is held in the form of bars and coins.
Dr. Moily said, 40% of the world gold stock is lying in India in the form of jewellery and some in temples. The World Gold Council estimates the annual consumer demand for gold will be excess of 1,200 tonnes, at a value of Rs 2.5 trillion, by 2020.
The gold policy until economic reforms in the early 1990s centred around the major objectives of discouraging people from purchasing gold, reducing domestic demand, regulating supply of gold, curbing smuggling and black income and conserving foreign exchange.
After the severe Balance of payment crisis during early nineties, there has been a shift in the approach of the gold policy. It was realized that the role of a liberalized and developed gold market was in the interest of consumers and efforts were made to integrate the gold market with financial markets, said Dr. Moily.
He also said that to restrict the rising trend in gold imports, which is adversely affecting India's balance of payments, measures were and are being taken by the government. In order to keep a check on the current account deficit, the UPA government had imposed import restrictions on gold, oil and other commodities. Now the government has come up with two schemes, Gold Monetization Scheme (GMS) and Sovereign Gold Bond Scheme (SGBS).
Over the past decade, the Indian gold industry has significantly matured. The market currently has several participants from Bullion Banks, Government Agencies, Premier Trading Houses, Precious Metal Exchanges, Institutions offering Gold Loans and Gold ETF's. However, the market needs policy action from the regulators for further growth of gold industry in India.
Asia has emerged as an extremely important market for the global gold trade. Five countries- China, India, UAE, Singapore and Thailand together last year imported 2,581 tonnes. In other words nearly 60% of the total global supplies flowed into these countries.
The annual consumption of gold which was estimated at 65 tonnes in 1982, has increased to about 1000 tonnes presently. About 80% is for jewellery fabrication for domestic demand, 15% for investor demand and barely 5% for industrial use.
Despite the fact that India is the world's largest consumer of gold, there is no reference point for gold prices in the country. Though it is the leading player in import and trade in bullion and export of jewellery, it does not exert any significant impact in discovery of gold prices in the international market. The reason is that country's bullion trade is fragmented and unorganized.
In order to make India, the global gold trading hub, it is necessary to identify the inefficiencies involved in Indian bullion market and to create a momentum to remove such inefficiencies in a gradual but steady manner. Finally, the institutional and policy-level issues associated with the various sections of the gold market have to be addressed by the government in coordination with the different regulatory bodies.
The Govt. of India has implemented hallmarking scheme to protect the consumer in purchasing gold jewellery of requisite purity, develop export competitiveness and make India a leading market for gold jewellery in the world. Hallmarking is the accurate determination and official recording of the proportionate content of precious metal in precious metal articles. Hallmarks are thus official marks used in many countries as a guarantee of purity or fineness of precious metal articles. The principle objectives of the Hallmarking Scheme are to protect the public against adulteration and to obligate manufacturers to maintain legal standards of fineness.
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