The government should focus on implementation of reforms to develop the gold market which has the potential to become the gold trading capital of the world.
FULL COVERAGE: Union Budget 2016
The following measures can be introduced to fulfill the dream of making India the gold-trading capital of the world:
A gradual move towards a free market: This will allow import and export of gold freely or with minimal restrictions/reporting. While there is a high chance that domestic prices are not at par with international prices due to excessive price fluctuations, this is unlikely to happen in a free market and would thus serve as a stepping stone towards bringing efficiency in the markets.
Steps to bring domestic prices on level with international prices: For this to become successful, all the additional taxes, duties and levies need to be abolished. Price parity will bring about an efficient two way transfer of gold.
Setting up a Gold Corporation: A Gold Corporation can help in creating the right policies to develop the market. It will also ensure smooth implementation and coordination of the newly launched gold schemes. It would increase the chances of success when the shortcomings can be easily addressed by a focused entity. India could further develop its gold market and use its strength to become a hub for gold trading, refining, jewelry manufacturing etc as far as the global gold market is concerned.
Various forms of gold purchases should become ‘fungible’ and easily transferable: One should be able to deliver their sovereign gold bond and get physical gold like it happens in an ETF or be able to deliver Gold ETFs for exchange for a piece of jewelry. This will ensure all-round development of the gold ecosystem and help bring in the much needed trust of people in various gold initiatives and have them look at options other than physical gold.
The author is senior fund manager- alternative investments, Quantum AMC .