The affinity Indians have towards gold is well-known. While they buy gold both as investment or adornment, very few are willing to part with it even in bad times. The country holds 22,000 tonnes of above-the-ground gold stocks and buys around 850 tonnes every year, but sells very less of its holdings. The efforts to monetise the gold stocks in the past did not see much success because of the sentimental attachment to the metal. However, a new survey by World Gold Council (WGC) and Federation of Indian Chambers of Commerce and Industry (FICCI) shows that Indians too are willing to monetise gold provided they are right products in the market.

The survey, which took a sample size of 5,000 respondents across India, showed that consumers are willing to consider interest-bearing gold-based investment products, even if the gold they receive at the end of the tenure is different from what they deposited. More than 49 per cent of respondents said they would be willing to deposit their gold coins and bullion to earn interest.

Moreover, 72 per cent said they were happy to receive different gold from their initial deposit, while 62 per cent said they would prefer cash or India branded gold coins at maturity. Only eight per cent said they would prefer to have their original gold returned to them.

More than a third of respondents would be willing to deposit 25-50 per cent of gold in their possession while three per cent would deposit between 75 per cent and 100 per cent of their gold.

“Demand for gold in India is interwoven with culture, tradition, the desire for beauty and financial protection. It would be futile to control gold demand knowing how much the passion for gold drives savings itself. We believe the solution to meeting India’s enduring appetite for gold lies not in restricting the import of gold, but in making better use of the gold that is already in the country, making it a productive fungible asset class like any other financial savings,” Somasundaram PR, managing director, India, World Gold Council, said.

“The need of the hour is to re-engage all stakeholders to develop a coherent long-term ‘India gold policy’ that results in a robust infrastructure for gold, drives standardisation and transparency, encourages gold-based investment products and supports the economic priorities of the country. With India at the centre of the global gold eco-system, it is imperative that we find ways of mobilising and monetising the 22,000 tonnes of gold in Indian households to fund economic growth,” he said.

While ranking the assets the respondents would liquidate in a crisis, bank deposits came first. However, most respondents cited gold jewellery, which is one of the largest stores of wealth, as their second choice for liquidation. Many respondents said large items of jewellery would be sold first, because most ancestral jewellery is old-fashioned and can no longer be worn. This suggests that attachment to such pieces may not be as sticky as is widely believed.

However, the large stocks of Indian gold are still not monetised. There are two products that currently help monetisation of gold to some extent – gold loans and gold deposit schemes. Gold savings account is a potential product that has been successful in many other economies.

Using gold as collateral for loans is an age-old product in India. Loans, which were mainly offered by pawnbrokers and informal agents, is gradually getting organised with non-banking financial companies and banks getting into gold loans. Gold loans have helped customers use their gold assets for economic growth like purchasing agricultural equipment and household goods, setting up new businesses or spending for education. The organised gold loan industry is valued at more than Rs 1 lakh crore.

Gold deposit scheme (GDS) was introduced in 1999. The scheme allowed partial withdrawal of deposited gold and premature payment was allowed in the form of gold or cash and cash loan against the deposited gold. It also offered exemption from wealth tax and capital gains tax.

In 2013, the Reserve Bank of India allowed banks to launch the scheme without prior approval from it. Mutual funds also were allowed to participate. But the response to the scheme has been far from desirable. According to some estimates, the scheme was able to collect only 15 tonnes of gold.

First of all, very few banks offer the scheme and those who offer have set the minimum quantum for deposit at anywhere between 500 gm to one kg of gold, making the scheme more suitable for temples and institutions than individuals. The product is also not widely marketed. Banks also do not have the facility to quickly assay the purity of the gold.

WGC finds gold savings accounts more suitable for the Indian market. The product encourages consumers to move away from purchasing physical gold and instead saving the same amount in a bank account. This helps the money become part of the financial system. For this, Indian banks should be allowed to use gold as part of their liquidity reserves. This would incentivise them to introduce gold-based savings products.

Under the savings account, the bank should credit equivalent grams of gold against the cash in the account. There should be flexibility in terms of frequency and amount of cash deposits. The savings could be withdrawn as gold or cash at any point of time.

Apart from savings account, the government and the RBI can also look at different products to monetise gold. Simple bank savings products could allow customers to convert physical gold into a gold account, withdrawing either cash or gold in return.

There should also be investment products that would allow customers to convert physical gold into a bank account and take a position on the gold price. Customers with restricted income, such as retirees, can pay interest on loans as gold coins. Education loans can be offered against gold and house owners can provide gold instead of rupees as mortgage equity.

“Through this report we have re-examined many assumptions around gold and have also suggested ways of monetising this asset. We hope that this report will form the basis for formulating a comprehensive public policy on gold,” A Didar Singh, secretary general of FICCI, said.

All Indian Gems and Jewellery Trade Federation too has been making recommendations to the government seeking efforts to monetise gold stocks. “We have suggested that certain licenced jewellers be allowed to attract gold from consumers and deposit the same with scheduled banks. This will be easier to unlock the gold stocks rather than setting up a bullion corporation of getting banks to do this. They do not have the infrastructure of jewellers,” said Bachhraj Bamalwa, former chairman of the federation.

As per the Rashtra Suvarna Nivesh Scheme, proposed by GJF, gold deposits from individuals and institutions will be collected through the jewellery outlets. The industry body will be responsible for refining the gold and handing it over to banks as bars. GJF has tied up with Nova Scotia Bank, a major supplier of gold to the industry, for this purpose. The bank in turn will supply this gold to the jewellers and bullion traders.

The scheme has proposed to offer 2.5 to three per cent interest on the deposits, which is slightly higher than the interest offered by the banks. Moreover, the interest income from the deposits will be exempted from income tax, capital gains tax and wealth tax. At the end of the tenure the depositor will receive gold in the form of coin or bar.

“As far a customer is concerned, he would prefer to deposit jewellery with his trusted jeweller than a bank. We had also proposed that the transaction would happen through demat account and RBI would be able to monitor and control the scheme. This will also give adequate protection to the consumer,” said Haresh Soni, chairman of GJF.

There is, however, an element of risk in terms of the quality of gold, which will be returned to the customer when the deposit period is over or when a depositor wants a premature withdrawal from the scheme. The gold coin or bar returned may be certified but there is very little that customers can do to verify the authenticity of the certification. Although it is an unlikely event, but geopolitical crises in economies or currencies can make government agencies defer the redemptions or premature withdrawals from the gold monetisation schemes.

The All India Gems and Jewellery Trade Federation (GJF), the national trade federation for the promotion and growth of trade in Gems and Jewellery (G&J) Industry across India, has expressed deep disappointment and shock at the Interim Budget proposals that are anti jewellery sector, depriving livelihood of millions of people engaged in the sector.

“It is anti-people budget impacting over three crores people as the Finance Minister ignores the plight of jewellery artisans and craftsmen”, said Mr. Haresh Soni, Chairman, GJF. “The entire Gems & Jewellery Industry is deeply disappointed and shocked at the insensitive treatment meted out to it by the Government. The Government seems to be inconsiderate to the plight of lakhs of families of goldsmiths and craftsmen, who are suffering due to lack of job work and thereby threatening their livelihood. The Government is also turning a blind eye to the increasing instances of gold smuggling that is not only creating a parallel economy but also threatening the security of the country due to rise in anti-social activities”, Mr Soni said. Even Gjf suggestions to control CAD thrown out of window as it demanded that the 80:20 must be withdrawn and duty must be brought down to 2%. Governmeant now should roll back the restricted policy as the Current Account Deficit has reduced substantially. Such policy reversal would also curve the growing black marketing activities in the trade.”

GJF has reiterated that the Government’s recent policies such as 80:20 scheme has resulted in high premium and monopolized business environment, destroying the organized G&J industry as well as lead to unemployment and starvation amongst the workforce.

GJF feels that the G&J industry is being discriminated against because excise duty relief has been granted to luxury items such as large/ mid-sized cars & SUVs under the pretext that the automobile industry is registering negative growth but the same was not extended to the G&J industry. The domestic gems and jewellery industry, which employs 40 lakh people, had a market size of Rs. 251,000 crore in 2013, with a potential to grow to Rs. 500,000-530,000 crore by 2018 (FICCI-AT Kearney Report 2013). But its growth has been curbed after the ‘Gold Control Raj’ was imposed in the country in August 2013 and after the Government sought to restrict gold imports under 80:20 scheme.

Reiterating that gold cannot be considered as the only factor responsible for the growing current account deficit, GJF said that the Government should recognize people’s sentiments to consider gold jewellery as the best social security and also preserve the centuries old jewellery design legacy of India. If India’s artisans, craftsmen and goldsmiths don’t survive, then the country’s centuries old heritage of jewellery making will die a natural death and will be lost forever!

“We urge the Government to keep import duties on gold low to eliminate smuggling; and immediately remove the 80:20 Rule while allowing consignment gold imports to ensure fair open market controlled business. We urge the Government to keep import duties on ready finished imports moderately high to protect Indian industry, still not banning imports. Competition from overseas is important for keeping domestic jewellary manufacturing industry competitive in design and quality.” Mr Soni said.

GJF also expressed disappointment that while the Union Finance Minister spoke about the fall in manufacturing investment worrying and attracting capital investment, the manufacturing facilities in the G&J industry were lying unutilized due to Government policies. The Indian G&J sector has not attracted any national or international investment in jewellery manufacturing and the technology has not been upgraded to keep pace with global tools & techniques.

On one hand, the Government was encouraging the National Skills Development programme and sector mentor counsel by labor employment department, but on the other hand, its policies resulted in driving lakhs of jobless artisans and craftsmen towards suicide. The Government was promoting entrepreneurship but discouraging it in the G&J sector, as per the GJF. The Government seems to be controlling fiscal deficit at the cost of sacrificing the indigenous G&J industry.

Gold jewellery exports are set to halve this financial year on shortage of the metal.

After a steep fall in the first half of the financial year, the decline was arrested in October on expectations of robust sales in the US, the world’s largest consumer of ornaments with a 38 per cent global market share. Hopes were pinned on Christmas, New Year, Mother’s Day and a recovery in the US economy. The ensuing US festive season (one-and-a-half months) is significant for jewellers across the world as it accounts for 40 per cent of sales.

Shipments’ value in the first seven months of the financial year recorded a decline of 50.8 per cent to Rs 23,545.6 crore compared to Rs 47,867.3 crore a year ago.

In dollar terms, however, the decline was sharper by 54.7 per cent to $3,951.4 million between April-October 2013 as compared to $8,727.46 million a year ago.

“Exports may decline 50 per cent this year. The falling trend will continue. With inadequate recovery from domestic sources through melting of used jewellery, jewellers are suffering a shortage of at least 50 per cent of the raw material,” said Mehul Choksi, chairman and managing director, Gitanjali Group, on the sidelines of the FICCI-UBM Gems & Jewellery Conclave, an event coinciding with the Mumbai Jewellery & Gem Fair, Wednesday to Friday.

The government has restricted import of gold to control the burgeoning the current account gap by introducing a 20:80 formula, under which a minimum 20 per cent gold arrived should be mandatorily supplied to exporters. The government also raised import duty on the metal to 10 per cent. Despite all these, consumers’ appetite has not waned.

“There is a genuine concern for exporters. Unless the current account gap slips to 3.6-3.8 per cent, easing of gold import rules looks impossible. Meanwhile, the government can explore processes to make gold available for exporters,” said Naina Lal Kidwai, president, FICCI.

In the meantime, Dubai, a major trading centre, has achieved $39 billion of gold trading this year, similar to the figure for the full year of 2011. China has emerged as a large manufacturing centre, a status India was enjoying.

“So, China may gulp us if gold is adequately not supplied,” said Choksi. Meanwhile, the Gem & Jewellery Export Promotion Council is in talks with the ministry of economic affairs for replenishment of 300 kg of gold with tax benefits for exporters who executed orders between July 22 and September 27, the period which saw extremely low import.

“Exporters honoured their commitments to keep future business afloat by paying a high import duty. Hence, they be rewarded through at least replenishing the quantity,” said Vice-Chairman Pankaj Parekh.

The domestic gems and jewellery industry is likely to double in the next five years on growing demand of bullion for investment and ornaments for household consumption and gifting purposes. A study titled “All that glitters is gold : India Jewellery Review 2013” conducted by the global consultancy firm A T Kearney, forecasts India’s gems and jewellery market to achieve the size of Rs 500,000 – 530,000 crore by 2018 from the level of 251,000 crore in 2013. Industry body FICCI associated with its publication.

In 2012-13, the industry drove jewellery exporters to the tune of Rs 227,000 crore, outperforming textiles and apparels by a huge margin of 25%. The industry also drove value addition of more than Rs 99,000 crore which is comparable to several large industries such as apparel manufacturing.

The investment demand in the form of bars and coins could potentially reach Rs 180,000 – 190,000 crore by 2018 from the level of Rs 85,000 crore in 2011-12. This assumes that the current macroeconomic environment and industry ecosystem persists. The future growth in the domestic gems and jewellery market is thus expected to be impacted by the low-growth outlook for the Indian economy. It also assumes that the current import restrictions will be removed and there will not be any limiting effect of raw material supply, the study finds.

The industry plays a significant role in the economy through its contribution to employment generation, exports and value additions. However, it caters to two very distinct demand – consumption and investment – with very different needs and challenges.

Some of these challenges including high import dependence and limited domestic recycling, limited financing options for the industry and over regulated consumption industry and under regulated investment industry etc can impact the industry’s performance and contribution to the economy if they are not addressed, it added.

The domestic gems and jewellery industry is likely to double in the next five years on growing demand of bullion for investment and ornaments for household consumption and gifting purposes. A study titled “All that glitters is gold : India Jewellery Review 2013” conducted by the global consultancy firm A T Kearney, forecasts India’s gems and jewellery market to achieve the size of Rs 500,000 – 530,000 crore by 2018 from the level of 251,000 crore in 2013. Industry body FICCI associated with its publication.

In 2012-13, the industry drove jewellery exporters to the tune of Rs 227,000 crore, outperforming textiles and apparels by a huge margin of 25%. The industry also drove value addition of more than Rs 99,000 crore which is comparable to several large industries such as apparel manufacturing.

The investment demand in the form of bars and coins could potentially reach Rs 180,000 – 190,000 crore by 2018 from the level of Rs 85,000 crore in 2011-12. This assumes that the current macroeconomic environment and industry ecosystem persists. The future growth in the domestic gems and jewellery market is thus expected to be impacted by the low-growth outlook for the Indian economy. It also assumes that the current import restrictions will be removed and there will not be any limiting effect of raw material supply, the study finds.

The industry plays a significant role in the economy through its contribution to employment generation, exports and value additions. However, it caters to two very distinct demand – consumption and investment – with very different needs and challenges.

Some of these challenges including high import dependence and limited domestic recycling, limited financing options for the industry and over regulated consumption industry and under regulated investment industry etc can impact the industry’s performance and contribution to the economy if they are not addressed, it added.

Gold jewellery exports may decline by about 50 per cent in this financial year from last year after government restrictions reduced the availability of raw material, Gitanjali Gems Chairman and Managing Director Mehul Choksi said today.

Gold jewellery exports were Rs 1,293 crore in 2012-13, according to the Gems and Jewellery Export Promotion Council.

"There are less stocks available in the market and the premium is as high as 8-10 per cent in the domestic market. This will give rise to smuggling. Very little gold is available for exports," Choksi said.

"Exports have declined by 55 per cent since the last seven months. We are expecting an overall about 50 per cent decline in gold jewellery exports this financial year," Choksi told reporters on the sidelines of the Mumbai Jewellery and Gems Fair 2013 organised by UBM India and FICCI.

He said if raw material availability remains low, it will give rise to smuggling. During the festive season, industry's sales fell about 50 per cent from the previous year period.

"There is a need for conducive government policies for the sector to perform well. If the gems and jewellery sector grows to its full potential, it can easily employ another 1 million people," he added.

The sector currently employs about 2.5 million people. Choksi said Indian demand for gold jewellery is shifting to the Middle East due to competitive prices.

"Middle East countries are taking advantage of the India situation as Indians are going to those countries to buy gold jewellery," he added.

Gitanjali Export Corporation CEO Sanjeev Agarwal said local gold prices are high, even as prices overseas drop. In Dubai, gold is 21 per cent cheaper than in India, making the city an attractive destination to buy the metal, he added.

"There are reports that about half tonne of gold is coming into India from Dubai. The Middle Eastern region, along with China and Thailand, are also emerging as alternative manufacturing bases. Many big players have already shifted their bases to these locations to feed the export market," he said.

All India Gems and Jewellery Trade Federation (GJF) Chairman Haresh Soni said NRIs are also buying from outside India.

"The domestic market is affected by the lower availability of stocks. Even NRI demand is getting diverted to other countries like the neighbouring countries and Dubai," he added.