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Idea of Reducing Gold Imports Important

Regardless of the economic situation, utilising savings of the country for investments and thereby creating growth and jobs is a commendable

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Idea, Gold, Imports
The idea of reducing gold imports is important, but suggestions ranging from raising import duties further to imposing bans need to be reassessed urgently. Pixabay

Recent financial news headlines have seen some concern with India’s gold imports and the fact that a significant component of domestic savings is “exported” abroad, which could probably be utilised to spur investments and growth in India. The idea of reducing gold imports is important, but suggestions ranging from raising import duties further to imposing bans need to be reassessed urgently. Regardless of the economic situation, utilising savings of the country for investments and thereby creating growth and jobs is a commendable and much-required objective. However, policies employed to do so must be ones that positively incentivise savers to park their savings in investment options linked to the capital markets than in gold.

To facilitate the growth of the financial sector, the financialisation of savings further, if done well, can help the situation in many ways. Besides channelling investments into businesses through the capital markets, the assets can yield much needed social security through income-generating retirement funds as a generation of workers retires over the next few decades. But, to do so, one must look at structural factors that can induce savers to park their money in the capital markets over and above gold.

Over the last several years increased taxation through a steady rise in the dividend distribution tax, long-term capital gains tax, short-term capital gains tax and securities transaction tax has to some extent slowed down the long-term aim of capital markets being a point of interaction between the savings of investors and capital required by companies. It is essential that going forward policymakers look to address these issues to ensure that markets can operate with as low friction as possible.

The importance of a steady flow of savings into the capital markets is essential not just from an equity perspective, but more so from a debt perspective. The focus must be much beyond only the listed markets. Financial instruments traded in the private markets must be made attractive from a tax perspective to increase capital availability for Indian businesses. Essentially, the vital question the capital markets authorities must ask is are we making investing into companies through both debt and equity attractive enough for investors?

Idea, Gold, Imports
Recent financial news headlines have seen some concern with India’s gold imports and the fact that a significant component of domestic savings is “exported” abroad, which could probably be utilised to spur investments. Pixabay

Additionally, perceptions are critical to capital flow. Investment options will be viewed by market participants not just in terms of current regulations, but also in terms of the participants’ perception of future regulations. While incentives are the way forward, imposing controls on price and volumes will not lead to the desired outcome. Instead, with increased controls, a higher distortion in the market may be observed.

While there have been calls from a few quarters for imposing controls of some type on the gold market, what is needed now is to frame policies that channel savings into domestic assets through incentives. It is also essential to be aware of global trends that affect commodity markets. In an age of unprecedented quantitative easing, robust demand for gold is to be expected. While predicting the future path of global interest rates is difficult, an appreciation of global trends and policies that cater to the same will be essential.

The policy debate between utilising effective regulations versus controls to channel capital is one that has ramifications much beyond the discussion on gold. Given the need India has in terms of both domestic and foreign capital to finance new businesses, distressed assets, and the general credit markets, a reassessment of the incentive mechanism is essential now. Deregulation and stable policy on the supply side, especially taxation policy, are going to be the biggest drivers of both domestic and foreign capital into India.

Capital availability for a country is incumbent upon the three main pillars: (i) of adequate financial instruments and vehicles that investors can utilise, (ii) taxation policies that determine returns from the aforesaid instruments and vehicles and (iii) most importantly, a stable policy regime. The government and stakeholders must continually evaluate as to how to improve upon the three pillars of capital availability, mentioned above.

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As India looks to source capital, a relook at the policy frameworks is critical to incentivising savings into channels that can help create capital for investment and growth. The focus must be on incentivisation, as opposed to further controls that may distort the market. (IANS)

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Hallmarking of Gold Jewellery Becomes Mandatory from January, 2020

Regarding the impact on prices, the Kolkata-based jeweller, however, said that there is unlikely to be any impact on prices as hallmarking of one gold item costs "only around Rs 40" and traders would be able to afford it

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gold jewelry
Among so many kinds of gold jewelry items, gold bangles are the most popular. Pixabay

Union Consumer Affairs Minister Ram Vilas Paswan on Friday announced that hallmarking of gold jewellery and artefacts will be mandatory from January 15, 2020.

Addressing the media, Paswan said that hallmarking of gold jewellery and artefacts is being made mandatory in India for which a notification will be issued by the Department of Consumer Affairs and a period of one year will be given for implementation to ensure that new assaying and hallmarking centres will be set up by private entrepreneurs at locations where demand of gold jewellery and artefacts arises.

Jewellers will also get a year’s time for completion of their registration process and retailers also would have a year to clear their existing stocks.

The minister said that hallmarking will benefit the poor people in villages and small towns who are not able to make out the purity of gold they have been buying.

The Bureau of Indian Standards Act 2016 has enabling provisions under Section 14 and Section 16 for making hallmarking of gold jewellery and artefacts mandatory by the Central government. This will make it compulsory for all the jewellers selling gold jewellery and artefacts to register with the BIS and sell only hallmarked gold jewellery and artefacts, an official statement said.

The BIS Act 2016 has been implemented with effect from October 12, 2017 and BIS Hallmarking Regulations 2018 notified with effect from June 14, 2018. BIS has been running a hallmarking scheme for gold jewellery since April 2000. As on October 31, 2019, there were 877 assaying and hallmarking centres spread in 234 district locations across the country and so far 26,019 jewellers have taken BIS registration, as per the statement.

The World Gold Council (WGC) welcomed the move and said that it would benefit both the consumers and traders alike.

Idea, Gold, Imports
The idea of reducing gold imports is important, but suggestions ranging from raising import duties further to imposing bans need to be reassessed urgently. Pixabay

Somasundaram P.R., Managing Director, India, WGC said: “This is an excellent step in the right direction, a long overdue policy action. It will bring trust back to the gold industry, benefiting consumers and trade alike. It will change the image of the Indian gold industry and enable it to market our famed jewellery handcrafting skills in an environment of trust and transparency.”

“Mandatory hallmarking would lead to more jobs in assaying and purity verification which in turn will support the gold monetisation scheme, he said adding that the period of one year to transition takes into account business realities and is very supportive of trade.

The decision however received concerned reactions from the market as market players say India significantly lags in terms of assaying and hallmarking centres.

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Speaking to IANS, jewellery trader and former Chairman of the All Indian Gems and Jewellery Federation Chairman, Bachhraj Bamalwa said: “Although there is not going to any major impact on the market because most of the jewellers in the metro cities carry out hallmarking, there will be issues in the three tier and four tier cities as there are no hallmarking centres. Traders in small cities will find it tough to get their jewellery stock hallmarked, as the reach of the hallmarking centres is quity low.”

“Government should take the industry into confidence in order to make the law,” Bamalwa said.

Regarding the impact on prices, the Kolkata-based jeweller, however, said that there is unlikely to be any impact on prices as hallmarking of one gold item costs “only around Rs 40” and traders would be able to afford it. (IANS)