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Cloud over gold plan



Opposition to the Niti Aayog’s draft gold policy is growing after the Nirav Modi-scam.

The policy, which seeks to relax the stringent collateral conditions for loans to jewellers to buy gold, has faced objections from the finance ministry and bankers, who consider this as a recipe for disaster, given the track record of the bullion trade.

The final draft sought the removal of the requirement of a forward cover for a Gold Metal Loan (GML) . It allows a jeweller to borrow gold instead of money and settle the loans from the sale proceeds. The loan can be availed for 180 days in case of a domestic jewellery manufacturer and 270 days in case of exporters.

Officials point out the RBI has been tightening the rules following several cases of fraud in gold loans.

A RBI notification recently issued said, “Lack of proper monitoring mechanism and not ensuring end use of GML has resulted in certain instances of frauds/ misuse related to GML by certain unscrupulous jewellers.” The apex bank advised that letters of credit and guarantees given to such borrowers must be accompanied by “rigorous credit appraisal exercise”. Each banker should carry out their own diligence exercise and not depend on the fact that another bank has given a letter of credit.

“This point will be junked when we finalise the gold policy,” North Block officials said. The draft policy also wants to curb the search and seizure powers of revenue officials, something which the finance ministry is not willing to concede, pointing out that the sector accounts for huge black money transactions.

Officials said another recommendation – that of slashing the GST on gold from 3 per cent to 1 per cent will be taken up with the GST Council and would “depend on their take on this. There has been extensive discussion on this but the council seems divided on the issue”.

Several states, including West Bengal and Kerala, had sought a lower GST, However others, mostly consuming states, have sought a higher duty. The Gem and Jewellery Federation of India has proposed 1.25 per cent GST,while the Indian Bullion and Jewellers Association had sought 2.25 per cent.

Courtesy: Telegraph

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