Chennai: India needs a comprehensive 10-20-year policy to financialise gold rather than repeatedly attempting to curb demand through import restrictions and other measures. With rising financial inclusion, a surge in gold loans, growing demat accounts and increasing digital transactions, the country is now better positioned to bring household gold into the organised financial system.
Commenting on restrictions on fresh investments in gold Fund of Funds, PR Somasundaram, director on the board of India International Bullion Exchange, said the measure was a signal rather than an attempt to curb gold demand. Existing systematic investment plans (SIPs) can continue, while investments in gold ETFs, jewellery, coins and bars remain unrestricted.
Gold ETFs have assets under management of around Rs 1.9 lakh crore, of which Fund of Funds account for approximately Rs 63,000-65,000 crore. However, the actual inflows into Fund of Funds are relatively small, limiting the potential impact of the restriction on overall gold demand and imports.
The measure comes amid pressure on the rupee due to external factors, including rising oil prices, and is intended to encourage investors to contribute towards managing the situation, he said.
However, Somasundaram cautioned against overlooking the structural reasons behind India’s gold appetite. Gold demand has increased globally, including among central banks, which have accumulated the precious metal as a hedge against currency depreciation and monetary uncertainty.
“Instead of trying to curb gold demand, the government should find practical ways to channelise people’s appetite for gold into organised financial markets and ensure that at least a portion of household gold is put to productive use,” he said.
He said the growth in gold loans after COVID demonstrated how household gold could be put to productive use. Gold loans have expanded substantially, with banks and NBFCs increasingly offering credit against jewellery. The perception that such loans are necessarily distress-driven has also changed, with borrowers using them for business purposes.
India’s financial landscape has changed considerably over the past two decades. Demat accounts, which numbered barely two crore earlier, now stand at around eight to 10 crore. Greater financial inclusion offers the government more avenues to bring gold into the formal financial system.
Monetising a fraction of India’s estimated 35,000 tonnes of household gold would be meaningful. Banks can introduce gold savings accounts and gold-based insurance policies for households saving towards future wedding expenses. Standardised India Gold Coins could also make gold purchases more recyclable.
Temple gold, too, could be channelled into the market through standardised coins, without disturbing jewellery used to adorn deities.
Operational difficulties, lack of trust between banks and jewellers, and inadequate risk-management mechanisms had earlier impeded gold monetisation. However, hallmarking infrastructure, improved financial systems and bullion exchange mechanisms have made implementation easier.
The government should revisit earlier proposals, including the NITI Aayog exercise, and bring together banks and jewellery associations to develop a concise, actionable roadmap.
“The objective should be clear: bring household gold into the formal financial system and ensure that it is put to productive use,” he said.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: deccanchronicle.com
