Gold: Policies to Shape a New Look Economy

India shares a dichotomous relationship with gold. But the yellow metal could also turn into a catalyst for economic growth.

Here’s how India’s mad rush for gold has been ill-defined these years. Yes, we are the nation of the land of the golden sparrow. And, yes, we import 800 tons of gold every year. But India is also among the top-five countries searching gold on Google. More importantly, ‘Gold rate’ or ‘Gold price’ as a keyword has consistently outperformed Nifty100, Sensex, and property since 2004. Gold is more than a dividend-less metal dragging our current-account-deficit.

Gold is the first choice of financial investment to billions of Indians – a 2018 Niti Aayog report attributes 60% of gold sale to rural market. With more goldsmiths (300,000) than a bank-branch or an ATM (211,000), there is more access to gold. It also inculcates the habit of saving – a World Gold Council report in 2017 found a proportionate growth between income rise and gold demand. The metal also provides employment to five million families and is an avenue to million businesses of different size. While the yellow metal augurs well for the economy, not all gold is beneficial.

ECONOMICS OF SMUGGLING

Smuggled gold affects the consumer, the industry, and the government exchequer. Effective tax rate of nearly 18% makes illegal gold cheaper by a margin of Rs 200 per gram. Smuggled gold of 200-300 tons is estimated to have caused a loss of Rs 20,000 crores to the taxman in 2021. This loss could be significantly higher given industry estimates 4,000 tons of gold smuggled into India every year. Smuggling also dents business prospects for the organised industry players given cheaper gold is preferred by consumers. The industry opines that rationalising taxes would not only help eradicate smuggling but also capture important transactional details in a structured manner which in turn could help improve fungibility of the yellow metal.

OLD GOLD, NEW PACKAGING

With gold prices systemically inching higher, the customer too has been empowered to invest in schemes such as Sovereign Gold Bond (SGB), Futures, Exchange Traded Funds (ETFs) and even fractional investments. However, these new schemes are not interoperable. Redemption or interoperability with other asset-classes is far from a friction-free transaction.  While the industry has relented to compulsory HUID (Hallmark Unique Identification), a layer of transparency could help instill interoperability with other asset-classes is far from a friction-free transaction.  While the industry has relented to compulsory HUID (Hallmark Unique Identification), a layer of transparency could help instill interoperability and enable jewellers to collect gold within the country rather than having to import it.

A GOLD HUB FOR THE WORLD?

A target of $45.70 billion awaits the gems and jewellery sector in 2022-23. Previously, the sector achieved $39.26 billion in exports from a targeted $41.66 billion. Gold-recycling, fair business practices, high-tech manufacturing, and green initiatives are expected to improve operational efficiencies for a sector that ranks sixth in global exports of jewellery. India needs an edge to compete against the likes of Switzerland, Hong Kong, and UAE. India’s advantage is its crafty karigar adept at reviving centuries-old design. Goldsmithery inherited across several empires and dynasties could be India’s secret ingredient to emerge as a gold hub.

Courtesy: TOI