It is interesting that the Government should be proposing a gold deposit scheme at such a juncture. Due to the recent hike in import duty from Rs 250 to Rs 400 per 10 gram of gold, import through the hawala route is believed to have shot up, increasing the premium from 1.3 per cent to four per cent. Also, nearly the entire official import has been on account of inflows on the Open General Licence (OGL) through 11 designated importing institutions, which would imply that purchase of gold by non-resident Indians must have been funded through foreign exchange procured from the hawala trade, and must constitute a major parallel trade stream in gold.

A move to allow a no-questions-asked amnesty for gold depositorswill stanch imports through the unofficial route, and banks will raise a total of 1,300 tonnes of gold which will enter the mainstream wealth pool from the parallel economy, according to market estimates. The Government had first started off such a scheme in 1993. In 1997, the Government redeemed 41 tonnes of gold bars deposited four years ago. The scheme should bring in a lot of unaccounted wealth back into the mainstream. The demand for gold as an asset has gone up after dipping sharply during the Asian economic disaster. During every quarter of the current financial year, the demand level has increased compared to the corresponding quarter the previous year: in the third quarter, the shortfall in demand against the previous corresponding quarter was a mere 11 per cent, which indicates a substantial recovery.

But the fact is, this would be more a case of the Government using the banking system to yank back a class of assets from the parallel economy to the mainstream, rather than a lucrative fee-basedbusiness for the banking system. There will remain one major drawback: only traders will participate in the scheme, because the household sector (which far outstrips the trade sector in gold demand in India) is by and large unlikely to want its family heirlooms converted into bars. The other point regarding the borrowers of the gold, that is, jewellery exporters, is that very little gold goes into the jewellery they export, because foreign demand is more for stone-studded jewellery than for plain gold ornaments, so that it is unlikely that large stocks of gold will in any special way spur exports substantially.