How the gold deposit scheme may impact gold imports into India?
The gold deposit scheme is an important step towards developing the gold market in India. Gold banking has been introduced in the country for the first time. While gold collected under this scheme would be either lent or sold to traders and manufacturers, lenders would receive interest on the value of gold they deposit with banks. Following maturity of a deposit, a lender would have the option of either taking gold or cash worth his gold deposit.

The success of the scheme would depend largely on how banks manage it, as well as on the rate at which gold is lent to traders.

Import of gold is dependent on the demand factor. The other factor that will influence gold imports is the volume of deposited gold actually converted into jewellery to meet the demand.

However, as the scheme is only a few months old and since the gold collected by way of the scheme has not been utilised yet, we feel it is too early to predict its impact on imports.

In India, gold has traditionally played a multi-faceted role. Apart from being used for adornment purposes, it has also served as an asset of the last resort and a hedge against currency depreciation. But most importantly, it has most often been treated as an investment.

Demand for gold during weddings and religious occasions is inelastic in nature. So, there is no reason why the scheme should dampen the Indian affinity for this metal with versatile qualities.

In fact, the gold deposit scheme will be a success only if there is demand for the metal in the country.

What prevents India from becoming the focal point of the gold business in Asia? Also, instead of remaining just a destination, why is it not able to emerge as a bullion distributor, a la Singapore and Dubai?
India was one of the largest bullion markets in Asia before the introduction of the Gold Control Act in 1962. The Act forbade trade of gold in any form and this continued for almost 30 years. Since liberalisation, we have seen efforts on part of the regulators to slowly revive the gold market in the country, in sync with the other sectors of economy.

While a country like Turkey has completely opened its gold market before liberalising its economy, India has followed the policy of simultaneous and consistent liberalisation of all sectors of its economy. Thus, since 1991, demand for gold has been increasingly met by official imports. The results are obvious in the form of reduced smuggling, unofficial premiums and enhanced government revenue, by way of customs and sales tariffs.

We believe that the policy of slowly but steadily liberalising the economy will prove extremely beneficial in the near future.

To answer your question on Singapore and Dubai, gold is available in these countries at international price. Moreover, bullion banking in such countries is free from regulations and gold trading is mature and advanced.

I believe that we are moving towards a mature market considering the way the liberalisation process has unfolded in the country. And once we achieve that, there is no reason why India cannot become the focal point of the gold business in Asia.

What is the role of World Gold Council (WGC) in hallmarking as far as India is concerned? Is it still actively involved? Will it take part in the companies floated to set up assaying units?
The food and consumer affairs ministry has assigned the task of introducing standards for gold jewellery in India to the Bureau of Indian Standards (BIS). The WGC has been actively supporting the BIS in this process. Since the standards need to be implemented by the trade, it was important that the BIS understood the complexities and logistics of jewellery trade in India and got acquainted with the trade's viewpoint on all issues.

To achieve this, WGC facilitated meetings and consultations of trade representatives with the BIS, in key gold trading centres in the country. And, on the basis of these meetings and as well as internationally adopted conventions, the BIS has formulated guidelines for voluntary hallmarking of gold that will be announced shortly.

The council also organised the visit of officials from Birmingham Assay (the largest assay office in the UK) to India. They met with the trade at various centres and explained to them the whole process of hallmarking as undertaken in London.

The council has also identified two critical areas for future co-operation with the BIS, namely, training of personnel and awareness programs.

Your comments on revival of gold smuggling after the hike in gold import duty earlier this year.
The hike in the customs duty did make import of gold through the unofficial channels more lucrative. Increase in gold seizures by government authorities does indicate that unofficial import of gold is on the rise. Before the duty hike, the premium over world price was around five to six per cent. The duty hike has caused the premium to surge to around 12-14 per cent and unofficial imports have steadily risen following the hike.

Moreover, the message of inconsistency in approach to gold tariffs makes the trade sceptical and does not allow them time to settle and plan their business.

For the Indian gold trade, the duty hike has, to a certain extent, rolled back the process of improving market flows and increasing efficiency in distribution. Both these factors are important if a strong domestic market is to be created as a base for improving export performance.

Do you see a shift from plain gold jewellery to studded jewellery in India? If yes, then how may it impact gold demand?
Most of the jewellery demand in India is in rural areas, with wedding jewellery constituting a major portion of this demand. This jewellery segment has traditionally been, and will continue to be, plain gold 22 CT. Exquisitely designed plain gold jewellery are still in vogue and there is an ever-increasing demand for newer designs.

However, in the metro cities the younger generation is increasingly looking at jewellery as a fashion accessory and here, the studded variety, 18 CT and lighter in weight, every-day-wear pieces are being sold. This, to my mind, is an entirely new segment that augurs well for gold demand.

What according to you should be the next step in liberalisation of bullion markets in India? Is India ready for a bullion exchange, a la Turkey?
An efficient spot and forwards market, sufficient liquidity, regular, safe and cheap supply system with good delivery standards are some of the prerequisites for smooth functioning of a bullion exchange.

While the gold deposit scheme, hedging facility for banks and a number of other gold related initiatives being planned by the government and the Reserve Bank of India (RBI) are steps in the right direction, we need to resolve issues regarding uniform sales tax rates, other local state levies, the Forward Securities Contract Act, acceptable uniform pricing mechanism, etc. before reviving the bullion exchange. We need to urgently address these issues before setting up a bullion exchange.

What role do you envisage for gold in the coming millennium?
The recent decision of the International Monetary Fund (IMF) & other central bankers against selling gold for the next five years signifies the faith placed in this metal by the leading economies of the world. Gold will continue to play a decisive role in world economy in the next millennium. The basket of currencies as a reserve asset has definitely dwindled with the advent of the Euro.

Moreover, currencies are a liability for the economy of the countries they represent, whereas gold is nobody's liability.