Pre Budget views   

By Mr. Prithviraj Kothari, MD: RSBL

Thursday, February 19, 2015

1. Research & development is the key to the future of Indian bullion industry. India is rich in mines but the R&D is so poor that we are hardly in position to extract much of its abundant resources. To be precise the country produced and refined only 1 - 3 tonnes worth of Gold. That’s less than 1% of the value of metallic mineral production in the country. On the other hand, China boosted its gold refining business after it gave companies a single-window clearance along with fiscal and infrastructure incentives which have put the industry on a fast track and made it a pillar industry in many of the country's gold producing areas. Data by China Gold Association (CGA) shows China produced 451.8 tons of gold in 2014, up 5.52% year on year. It had been the eighth consecutive year for China to become the biggest gold producer globally. I feel that if R&D is carried in an efficient way, production of the metal will increase. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.

I feel FDI is extremely important with regards to Research and Development. R&D is costly but with the help of FDI we can surely work out the way to get the most out of it. FDI will help in strengthening our rupee and in turn reduce the depreciation of our currency.

2. Most importantly, GST implementation is a must. If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management. A flat 1% across India should be levied by the government, which would replace most indirect taxes currently in place.

3. Commodity exchange have now completed almost 11 years in India. Introduction of Option product for this exchange is must. Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also be highly benefitted from this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date. 

Transaction costs like CTT reduce market participation and lowers liquidity.

4. Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain 3 years earning a fixed rate of interest.  Currently that has been reduced to 6 months. The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold. The government should harness the existing reserve of gold in our country rather than turning towards imports and implementing this alarming hike on customs duty. Hiking the duty on imports will in no way, curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security.

5. Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

6. I expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days. As of now Gold Loan is allowed upto 180 days which implies, a jeweller has to rollover his/her position twice in a year and that in turns leads to increase in imports. If the loan period is extended to 360 days, one cycle of loan will be reduced. A direct effect will be reduction in imports.

7. Currently, NRI’s are allowed to bring 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. I feel this cap should be raised back to the earlier levels or even more. This too will help in reduction of imports and reduce the Forex pressure.