IGPC was set up at the Indian Institute of Management, Ahmedabad (IIM-A) as the result of an agreement with the World Gold Council, the market development body of the global gold industry. The aim was an research and analysis institution on gold and related policies.
Responsible sourcing of gold is being championed by the Organisation for Economic Co-operation & Development, the 36-nation inter-government body. This followed reports of gold being sourced from mines in nations that are allegedly involved in funding of terrorism. The issue also covers sourcing of unrefined or dore gold. Terrorism apart, the idea is to avoid importing from places which cannot guarantee mining or pduction in a socially responsible way.
India's average annual demand has been 1,000 tonnes for some years. Around 85 per cent of this is met through import and othe the other 15 per cent from recycled gold.
The Centre has been working with the government and recommends the latter not aim at curbing import with the single view of reducing the current account deficit (CAD) but to take a more systemic approach. A gold monetisation scheme (GMS) has been suggested as a better solution by the Centre.
IGPC has also proposed an action plan to help the sector to grow, while curbing non-essential gold import. Arvind Sahay, chairperson of IGPA at IIM-A, told Business Standard; “We have been advocating successful implementation of GMS, setting up of a gold spot exchange, globally recognised standardisation or certification, taking steps to help increase gold export and financialisation of gold as an asset.”
For a GMS to succeed, the government would have to incentivise banks to accept gold as deposits, incentivise individual consumers to deposit gold without repercussions from tax authorities and ensure globally recognised gold certification on such deposits.
The present GMS has largely been unsuccessful. As against 24,000 tonnes estimated to be held privately, only 15-20 tonnes have been deposited and brought into circulation. Compared to this, Turkey has been able to mobilise three to four per cent of private gold into circulation. Reserve Bank of India (RBI) data shows only 23.5 tonnes worth of gold bonds had been sold till June this year, from the launch in November 2015.
Sahay says a spot exchange will not only enable legal flow of gold but help in clean and transparent pricing. Quoting the recent RBI committee report on household finance (Tarun Ramadorai panel), Sahay said, “The report findings essentially tell us that 11 per cent of household savings come in the form of gold. How one creates products that could financialise gold and bring it into circulation needs to be seen.”
The government’s recent measures to reduce the CAD by raising custom duty on gold import has seen a rise in smuggling.