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India Rejects Gold Import Controls, Urges Bank Savings Instead

Gold import rules won't be tightened, existing gold holdings "should be monetized"...
 
INDIA's "gold issue" won't be tackled by tightening import controls, the government says, but through urging savers to choose banking products instead, likely to include gold-linked deposits aimed at tapping existing household stockpiles to meet the country's world-beating consumer demand.
 
"The challenge is not to rely on gold," said Narendra Modi, prime minister of the BJP government elected last May, at a banking convention Friday.
 
"People buy gold and they have that psychological feeling that gold is safe, secure and good for the future."
 
The No.1 gold consumer nation today, India has been called the "sink of the world" for bullion since ancient times, long demanding gold and silver in payment for exports to Europe but now running a large current account deficit with the rest of the world, equal to more than 5% of GDP in 2012-13, spurring such a sharp decline in the Rupee's exchange rate that the then-government imposed strict anti-import rules.
 
"The challenge for banks," said Modi at Friday's launch of Indian bank ICICI's Digital Village – aimed at pushing cashless transactions in the world's second-most populous nation – "is to assure people that a bank account would ensure easy access to their savings whenever required."
 
November's gold inflows leapt to near-record levels at 152 tonnes – helping widen India's trade deficit to $17 billion – after Modi's pro-business government abolished the so-called 80:20 import control.
 
But new curbs won't be imposed, the Commerce Secretary said Wednesday after meeting industry leaders to discuss "the policy environment [around] the entire gold thing" in the world's heaviest gold-buying nation.
 
Thanks to falling oil prices helping cut India's current account deficit with the rest of the world, "Gold imports at present are not a cause of worry," Rajeev Kher told reporters in New Delhi.
 
"The government," added Bachhraj Bamalwa, head of the All-India Gem and Jewellery Trade Federation, "is also considering our recommendation of a reduction in the import duty" – hiked 5-fold to a massive 10% by the previous Congress Party administration as Indian demand leapt on falling world prices between 2012-2013.
 
Together with the 80:20 rule – which required importers to re-export 20% of all new shipments – India's high import duty has been blamed for a surge in gold smuggling, estimated at well over a quarter of total supply at the 2013 peak.
 
Indian gold premiums, over and above international prices, hit record highs on 2013's strict anti-import rules above $150 per ounce. Now, says Bamalwa, they have fallen back to more "normal" levels followng the abolition of 80:20.
 
Still, " India needs a gold policy," says market-development organization the World Gold Council in presenting a new report, jointly commissioned with the non-governmental, not-for-profit Federation of Indian Chambers of Commerce & Industry (FICCI) – "the voice of India's business and industry."
 
Making 7 recommendations, the report specifically urges the Reserve Bank of India to "monetize" India's existing private gold savings, bringing metal into the banking system by following Turkey's lead and allowing commercial banks to hold physical bullion as part of their liquidity reserves.
 
"This would incentivize Indian banks to introduce gold-based savings products," the World Gold Council-FICCI report says, helping "drive monetization" of Indian households' huge existing gold holdings, estimated at some 22,000 tonnes – perhaps one ounce in every eight ever mined in history.
 
With commercial banks in Turkey now able to hold up to 30% of their required reserves in gold, says the report, they have launched what it calls "innovative gold products" to consumers, such as gold deposit accounts, debit cards and checks. 
 
For Turkey's domestic gold demand – the 4th largest after India, China and the US – "this has reduced dependence on imports [and] contributed to a narrowing of Turkey’s current account deficit."
 
Market research undertaken for the India Gold Policy proposals found that some 49% of 5,000 respondents would put some of their household's gold jewelry or bullion on deposit at a bank in return for cash interest.
 
Further proposals include more transparent Indian pricing through a formal exchange market, better assaying and hallmarking of jewelry, and supporting the construction of "world class" gold refining plants.

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