Chairman, Malabar Gold & Diamonds
One of the key intents of rolling out GST was to make India a single market with similar tax slabs and, to the best extent possible, ushering in uniform prices for traded commodities and services. Overcoming the teething troubles of the transition into one-market paradigm, many commodities may fall into the one-price bracket gradually or at least the price difference may come down marginally. But it is unlikely that gold will have a single price across the country in the immediate future. Many weeks into GST regime, gold prices still show vast divergence from market to market. The price for 10gm of 22 carat purity gold in Chennai on July 14 was Rs 26,270, whereas the rate was Rs 27,410 in Mumbai, Rs 26,800 in Delhi, Rs 27,390 in Kolkata and Rs 26,370 in Hyderabad. Only in Kerala and Bengaluru, the price points converged at Rs 26,100. So, the price difference between Kerala and Mumbai was over Rs 1,300, which is crucial. The vexing trend in gold prices happens despite a single GST rate of 3% across the country. This calls for attention from the government, not just because we are the fifth-largest consumer of gold in the world or gold forms the second-largest asset class in the household savings basket after land, but also because of our resolve to create a single market. It is a fact that GST alone cannot bring the desired order, transparency and discipline into the sector where unorganised players and unaccounted businesses dominate.
A number of factors decide the pricing. But a correction is possible to a great extent through some constructive steps. First, the new tax system needs further regulatory props or support from the authorities to weed out the undesirable elements that trigger divergent prices. Equally important is the role of the free market in arriving at realistic price through independent trading platforms that will leave less room for any foul play or price rigging. A major lacuna in the regulatory ecosystem is the lack of an official oversight body that looks into the price formation in gold market. Currently, board rates are fixed in different markets by a set of bullion dealers. Though the dealers take into account the international rate and add up customs duty and other taxes to arrive at the market rate, a uniform price across markets still remains elusive because of the local pulls and push in that particular market. Sebi is supposed to oversee this mechanism, but it seldom happens as the stock market regulator is heavily burdened with other priorities.
In the pre-GST era, the brunt of the blame for such differential pricing was borne by varied tax rates existing in different states. But even in the post-GST scenario, the reality on the ground has not changed much. Therefore, an oversight body which is vested with sufficient powers or a self-regulatory organisation becomes the need of the hour to ensure a level-playing field for all concerned. The government can also nominate independent experts to make the process more transparent. Another factor that tilts the scale in favour of unorganised players is the availability of gold in the grey market. This curtails the pricing power of organised players who procure gold from official channels, after duly paying duties and taxes.
To put it succinctly, GST is a necessary condition but not sufficient to ensure a level-playing field or to bring gold standards to the yellow metal segment. We need more follow-up steps to walk into days of “one nation, one market, one tax and one price” for gold. It will be better if such an initiative comes from within the industry rather than from the government, since the latter may lead to the return of the Inspector Raj, stymieing the growth of the industry and stumping its global ambitions. Another desirable option is to emulate the Shanghai Gold Exchange model, with a separate trading platform to arrive at spot prices driven by pure market forces. This will make pricing more transparent and trading more efficient based on full information, eliminating grey areas of the trade.