In India, gold demand has been mainly fed by imports with the domestic supply of recycled gold and from other sources (recovery from imported copper concentrates, disinvestment and local mine production) comprising 11.6 per cent of the total supply of gold. As the inordinate gold appetite shows scarcely any sign of abatement, attempts by the authorities to reduce the import of gold came to the fore in 2013 in the wake a mini balance of payment crisis partly brought about by unconscionable uptrend in gold import. The measures undertaken to stem the abrupt surge covered high import duties, import payments restrictions on gold and banning the import of gold coins and linking gold imports to the level of exports with the 80:20 rule stipulating that 20 per cent of all gold imported must be exported before further imports could be made.

A crucial facet in the import of gold is that gold may be imported in finished form or in the garb of mine dore that is then refined to yield gold. The share of dore in the total imports of gold has been steadily increasing from 0.02 per cent in 2010-11 to 8.54 per cent in 2013-14 of gold imports. Interestingly, 89 per cent of the dore imported in 2013-14 was by a single refiner—MMTC-PAMP India Pvt Ltd, a joint venture between the state-owned MMTC Ltd and PAMP SA, Switzerland, the world’s largest independently-owned precious metal refiner. MMTC-PAMP India Pvt. Ltd, Managing Director, Mr. Rajesh Khosla said the recent spurt in the import of mine dore is attributable to MMTC-PAMP India Pvt. Ltd which was importing dore substantially. Incorporated in 2008, the company has established the world’s most advanced gold and silver refining and minting plant that got into commercial production in April 2012. In the current fiscal, the company is expected to refine in excess of 100 tonnes of gold. The benefits of dore refining over importing gold is that the value addition gets done within the country, generating jobs, sparing precious foreign exchange, besides generating tax revenues for the government as direct taxes are disbursed on refining income.

Stating that a world class refining and mining facility confers the company with a core competence to assay metals and the cognate logistics of moving metals in a secure manner across locations, Mr. Khosla contends that MMTC-PAMP is one of only three ”Approved Good Delivery Referees” of both the London Bullion Market Association (LBMA) and London Platinum & Palladium Market (LPPM). Besides, the company has been accredited as an LBMA Good Delivery Gold Refiner just two years after the start of production. Mr. Khosla said that right now the company is focusing on flagship stores and distribution networks. While the former is standalone entities they also feed into the distribution networks and the flagship stores are also brand-building exercise of the company for its minted gold and silver wares and the brand is also associated with determining gold purity. “Because we are LBMA-accredited, we are now seen as the best when it comes to refining and the basic step for refining is determining purity and we want to reach out to the consumer that we will bring purity verification to your doorsteps. Our flagship stores are a combination of purity verification as well as retail points for our minted products. The focus is on purity verification centres as also foray into platinum group metals. We are deliverable on exchanges in India and the RBI takes us seriously because what we produce is exchange-deliverable”, Mr. Khosla observed.

Interestingly, a monograph on “monetizing gold in India” authored by the Ahmadabad-based Indian Institute of Management (IIM) Prof. Errol D’Souza has argued that the important constituents of a gold monetization scheme (GMS) such as valuation, storage and tracking of the metal may be done by an organization such as MMTC-PAMP which has the expertise to provide the precious metals part of the transaction on behalf of the banks. As it is, MMTC-PAMP has 14 offices across the country where purity verification centres can also be undertaken to assay gold. Hence, the monograph argues that the GMS has the potential to drastically prune the reliance of the country on gold imports over time and this would succeed if the MMTC-PAMP is goaded into setting up purity verification centres pan-India. This might provide the first point contact for an individual to assay the gold in a state-of-the-art assay facility. Here the gold content will be verified in the customer’s presence, unlike the extant situation, and once purity is determined, the customer’s metal account with a bank will be credited online in his/her presence with the help of a proprietary software that the company provides to banks to handle associated metal part of the transactions. Earlier depositors had to wait 90 days to receive a certificate of gold content.

The entry costs into earlier gold deposit schemes were also high with a minimum gold deposit of 500 gm of gold. Now it would be feasible to do a transaction with a minimum of 50 gm. The returns offered earlier was 0.75 per cent for a minimum deposit span of three years could be scaled up to offer 2 to 3 per cent annual grammage returns over one to seven years to make the scheme enticing enough and yet profitable for the banks as well as the refinery.

As sudden inflow and outflow of capital from abroad as also the gyrations in the yellow metal have been the bane of the country’s fluctuating balance of payments position over the years, the monograph also focuses on the tried and tested unconventional monetary policy tool—the reserve option mechanism. This allows banks the option of deploying foreign currency and/or gold instead of domestic currency towards meeting their required reserves. Simply put, when the cost of domestic rupee funding is higher than foreign currency funding as happens during a surge of capital inflows or an spurt in the propensity to import gold, banks will find it lucrative to deploy foreign exchange or gold into reserves as that turns out to be less costly for them. The reserve option mechanism has manifest benefits such as promoting financial stability by addressing the volatility of the liquidity in the credit market and bringing gold into circulation from under the mattress to the mainstream. Besides, it lends flexibility to an inflation-targeting central bank as it has to resort to sterilization during occurrences of capital inflows. It is time the authorities mulled over the measures outlined to give a leg-up to the GMS, analysts contend. (IPA Service)