The gold monetization scheme and the demonetization on move are part of a plan to reduce India’s dependence on gold imports. But this is just the beginning. The campaign must go on says MP Ahammed, Chairman, Malabar Gold & Diamonds.
There seems to be a logical order in the Gold Monetisation Scheme which was introduced in November 2015 and the demonetization initiative launched in November 2016. These steps are part of a plan to reduce India’s dependence on Gold imports, which has a direct bearing on current account deficit and rupee value. Through these measures, a ‘gold census’ is being carried out, which should help streamline gold trade. It would not be surprising if a few more steps come up in sequel to these to curb the physical use of gold.
Going by guesstimates, India has a deposits of over 30,000 tonnes of gold, including inventories of traders and deposits. Gold has a sentimental value which makes India the world’s second biggest gold consumer after China. Around 900 tonnes are imported every year. Any move to bring to at least a certain percentage of hoarded gold into the official system and get it recycled will have a positive impact. Trade data shows that India’s gold imports declined to 60 tonnes during April-July this fiscal, against 250 tonnes last year.
As per government records, the gold monetization scheme has brought out 5,730 kg of gold through six tranches of bonds till mid-November. The demonetization drive, coupled with GST, can play a critical role in formalizing the gold industry, of which 85 per cent falls in the unrecognized sector. Restrictions on gold deposits by individuals is a census to ascertain the amount of gold in the market.
Some measures can be taken as a sequel to this. There should be a compulsory self-declaration scheme for all regarding gold deposits and this should be linked to Aadhar. Secondly, the government should bring down import duty to 5 per cent from the current 10 per cent which is vital to crush the parallel economy driven by gold smuggling. Thirdly, it is important to promote gold exports a ornaments as India has carved a niche for designs across global markets. The outbound shipments of gems and jewellery account for 13 per cent of India’s total exports. There may not be a ban on gold import anytime soon. November saw a high growth graph in import, due to international prices and demand for the wedding season. Though trade has come down 20 per cent after the demonetization move, domestic demand is bound to bounce back as we are in the wedding season that triggers a genuine demand.