
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.