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Economic integration of the business of gold

Rajesh Khosla, President, AGRM, National Vice President IBJA, Chairman Emeritus, MMTC-PAMP India


Introduction of the Gold Control Act in 1962 had the effect of killing the official gold market. For close to thirty years gold was associated with black money and corruption. Repealing the Gold Control Act in 1990 and liberalising import of gold in 1997 as part of the liberation policy were signs of restoring economic respectability to gold, culminating with Niti Ayog’s 2018 magnum opus on Transforming India’s Gold Market.


While liberalization was largely a success, the imports of two commodities in particular—crude oil and gold—exposed India to an account deficit from which it has never recovered. Oil is an everyday necessity. Gold, on the other hand—notwithstanding the cultural affinity for it, or the numbers employed in the jewellery manufacturing and retail sector—is seen as a luxury good. As an alternative to paper currency, gold is often favoured for money laundering and illicit trade. It is a high-value, easy-to-transport mineral, making it vulnerable to smuggling and an ideal target for armed groups.


Thus, India’s struggle to find a policy coherence that balances the cultural thirst for gold with macro-economic pressures and enforcement vulnerabilities that enable illicit activity.


The government approach to date has three overarching objectives, viz. reduce gold imports, increase transparency in the sector, and turn the sizeable privately held gold reserves into an “asset class.”


When viewed as an asset class, gold jewellery provides safety and security for women, and liquidity under difficult circumstances. Because of the huge demand for gold jewellery, gold is also a large industry, with employment potential for a country like India where unemployment is large.


However, since India does not produce gold domestically, the Indian economy will always have to pay for gold through Dollar outflows. More significantly, the industry is largely an informal sector, the business practices of which are associated with economic ills of tax evasion and money laundering, bringing the entire trade into disrepute.


Economic integration of the gold value chain transcends a pro-gold or pro-gold business policy. What does economic integration mean exactly? For India most importantly it must mean a market that has trust and credibility, quality and conformity throughout the business value chain.


Whereas the public face of gold is primarily jewellery, the entire value chain of Banks, Refiners, Nominated Agencies, Bullion Merchants, Jewellers, Artisans, Assay & Hallmarking Centres, Trade Associations, etc. are integral to and participate in the collaborative effort of achieving economic significance and integration.


India’s large gold holdings, estimated at 25,000 tonnes or so, make it the largest above-ground gold mine in the world. The ability to mobilise some of these above-ground holdings can address reducing non-essential imports like gold, help manage CAD  better,  while simultaneously encouraging Make in India in this sector.


Notwithstanding the above, it’s high time every participant in the value chain adopts a proactive mind set to take the lead in the journey of Gold’s economic integration. Some key areas of an industry driven proactive approach are as follows:


  1. Gold of today is associated with smuggling, tax avoidance and money laundering. Gold of tomorrow must demonstrate engaging with tax more effectively. Industry associations have the ability, responsibility and commitment to play a significant role in enhancing tax compliance in a largely unorganised sector and must take the lead.
  2. Gold of tomorrow must be an economic powerhouse, leading the charge with value-add exports and import substitution. Increased value addition on exports of gold jewellery, as distinct from merely increasing low value-addition export numbers, is key. Higher value addition requires greater focus on design, craftsmanship, consistency in quality, all of which get translated to enhanced skills in the domestic market, which in turn will enable more exports.
  3. Gold of today lacks financial inclusion. Currently financial inclusion is limited to pledging gold jewellery as collateral for a Rupee loan. Loan repayment default is not an unusual event and greater transparency in the collateralisation and its realisation process must be seriously implemented.
  4. Gold jewellery industry is still primarily an unorganised sector, with poorly trained resources, leading to leakage and low quality. Industry needs to introspect, recognise and develop business practices at par with global trade practices. Jewellery trade associations must take the lead in organising workshops for skill development of karigars, including exposure to new manufacturing techniques.
  5. With more players entering the digital gold space, jewellers and trade associations need to step up their interaction to provide a seamless link which will enable customer transfer gold digitally to jewellers’ credit when transacting for gold jewellery. The easier the transaction, the greater the convenience for its use.
  6. Hallmarking of jewellery enjoins upon the jeweller tendering jewellery for hallmarking to declare the gold purity in the jewellery being tendered, and on the hallmarking centre to do a scientific assay to verify that the gold content is not less than that declared. Both participants are liable for any misdeclaration or misdemeanour. Industry Associations need to take the lead in addressing this trust deficit by creating a network of Assay & hallmarking centres of the highest integrity. Consumer protection is paramount, more so when the underlying prompting the purchase is purchase of a financial asset.
  7. With BIS finalising its standard for Good Delivery Gold and Silver bars, Industry must get together to create and manage the Good Delivery eco-system, a self-regulating mechanism drawn on the lines of the globally accepted benchmark, the London Bullion Market Association Good Delivery system. This is a key enabler for financial inclusion.


  1. Artisanal and small-scale mining (ASM) remains largely informal and common. Almost twenty percent of the world’s mined gold is produced by artisanal miners and their informality and in many cases, illegality, make them vulnerable to corruption and violence. The refinery industry needs to be cognizant of the reputational risks associated with the likely sources of their raw material. If gold is being illicitly mined or traded along its journey from a producing country to India—whether or not it picks up legal paperwork along the way—it remains a tainted product. Sourcing practices should align with the OECD Due Diligence Guidance.


Economic integration is the outcome of dedicated effort across the value chain, based on achieving demonstrable goals with sincerity and commitment. Industry-led initiatives, sincerity of effort and results achieved will facilitate a sympathetic regulatory environment.


It takes two hands to clap. Industry has to outreach by stretching out the first hand with trust, sincerity and goodwill. The subsequent outreach of the regulatory hand, the coming together of hands, will enable Gold to restore its rightful place in India’s economy.


Disclaimer: Views are personal and not the views of the publisher.