Idle gold for an ideal economy?

Bestowed with individuals holding nearly 25,000 tons of yellow metal, India has a tall opportunity to spin the wheel of the economy. With individuals alone holding 25,000 tons of yellow metal worth USD 1.5 trillion, India has a tall opportunity to spin the wheel of the economy. Mobilising idle gold or gold stashed within bank lockers and individual almirahs has been the government's priority with the first of its gold-monetisation policy announced in 1999. Under the revamped gold monetisation scheme (GMS, 2015), customers were offered a significantly higher interest rate and income-tax exemptions.

While the availability of a gold monetisation scheme, sovereign gold bond, or ETFs, offer consumers the power to reliably invest in gold; such schemes have not resulted in a reduction in gold import. A successful GMS policy could not only persuade consumers to a viable financial instrument but also rationalise precious forex outgo.

ECONOMIC & INDUSTRIAL BENEFITS

Back of the envelope calculation suggests that idle gold in the country could help us avoid importing gold for thirty years. The annual import bill of 800-1,000 tons of gold not only inflates the current account deficit but also makes gold expensive to jewellers. An existing base of 25,000 tons held by individuals could turn into a resourceful procurement strategy for jewellers.

The industry which has targeted an export potential for USD 45.70 billion could turn competitive by focusing on gold recycling. Recycled gold from domestic sources is a strong push for the domestic industry which competes against the likes of the United Arab Emirates, Hong Kong, Canada, and even Russia.

For established jewellers such as Malabar Gold and Diamonds, recycling is already a viable business model. Malabar with over 160 points of sale across the country has a dedicated workforce that speaks the desired language when it comes to customers wanting to exchange, repair or process old gold. "The layman or household individual is comfortable speaking to us about the idle gold in his locker. We have the system to not only give customers the assurance on purity of gold but also offer her the incentive needed to turn their gold to us," says O Asher, Managing Director at Malabar Gold & Diamonds.

A NEW SAVINGS ACCOUNT?

A collaborative GMS policy leveraging from banks and jewellers is likely to empower financial inclusion at the last mile. A 2018 Niti Aayog report attributes 60 per cent of the gold sale to rural India. Also, the country has more goldsmiths (300,000) than a bank branch or an ATM (211,000).

Recycled gold is hence viable not just to jewellers but also to rural citizens when it comes to financial inclusion. While avenues to transact in gold have expanded in recent years, gold-related transactions are still not as seamless or simple as operating a savings bank account. An interoperable model could spur convertibility of physical gold or jewellery to cash and other investment forms. To a consumer keen on exchanging old gold, this could mean a transparent transaction promising better interest rates or incentives. The industry which has already witnessed a revolution in the form of HUID (Hallmark Unique Identification) enjoys the customer's unparalleled trust. Given this trust, policymakers must push for a renewed policy that could infuse new economic opportunities.

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( With inputs from ANI )

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