New Delhi/Mumbai: India, which vies with China as the top consumer of bullion, is working on new policies to improve transparency and help expand its $19 billion gold jewellery industry, according to people with knowledge of the matter.
The plans being worked out by the finance and commerce ministries along with industry groups should be finalized by the end of March next year, the people said, asking not to be identified because they aren’t authorized to speak publicly. D.S. Malik, spokesman for the finance ministry, didn’t answer calls to his cellphone, while a spokeswoman for the commerce ministry didn’t reply to an email seeking comment.
The start of a spot bullion exchange, to make gold supply more transparent and help enforce purity standards, is under consideration, the people said. An import tax of 10% could also be reduced as the government seeks to eliminate smuggling, they said. The plans also include a dedicated bank for the jewellery industry, according to one of the people.
The overhaul of India’s disorganized and fragmented gold jewelry industry is meant to bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Ensuring quality standards and allowing supply chains to be easily tracked are ways to enhance trust. The estimate for the size of the sector was given by the Mumbai-based India Bullion and Jewellers Association Ltd.
The measures could help underpin Indian demand, which is recovering after slumping to a seven-year low in 2016. Consumption is projected to rise to between 850 and 950 tonnes by 2020, from an estimated 650 to 750 tonnes this year, buoyed in the short term by a lower-than-expected goods and services tax to be implemented next month, the World Gold Council (WGC) said last week.
The government fixed the tax on gold at 3%, lower than the 5% feared by the industry, as it replaces more than a dozen domestic levies with a single duty. “The gold supply chain should become more transparent and efficient, and the tax reform could boost economic growth, which we see as supporting gold demand,” according to the WGC, a producer body that advocates for the metal.
Over the medium term, the sector will find it tougher to evade taxes as legal imports go through the banking system, and a full trail will now be established by the new nationwide tax compared with previous duties, which were levied at the state level only, Credit Suisse Group AG said in a note on Thursday.
The government is also keen to get the public to recycle its jewellery to reduce the nation’s reliance on imports. After a slow start to its plans to monetize the precious metal held in households and institutions, the government is looking to tweak the scheme and attract more participants, the people said, without giving details. The initiative, launched in November 2015, was aimed at returning an estimated 20,000 metric tonnes of idle gold to the financial system.
The commerce ministry is working with the Quality Council of India to make sure testing centers meet international purity standards and is seeking global recognition for its Bureau of Indian Standards (BIS) hallmark, the people said. Of about 30 bullion refineries in the country, only 10 are BIS certified, so far. The government also wants to bring the same quality control to the nation’s gold refineries, they said.
The WGC said last month that it’s working with the Indian government to create a spot gold exchange that may start up as soon as next year. The council has also said it supports cutting the import tax.