Kolkata, April 5
With two-thirds of India's
gold held in rural areas, efforts to curb its imports with schemes to
monetise holdings or convert them into paper bonds won't have much sheen
till the mindset towards physical possession of the precious metal is
changed, experts maintain.
Their comments come against the
backdrop of two schemes proposed by Finance Minister Arun Jaitley
recently for which the norms are awaited - one on monetisation or
permitting gold deposits with banks for interest, and the other on
redeemable gold sovereign bonds also with fixed interest.
"Bonds
will get comparatively faster acceptance among the urban investors, but
the success of the bonds will also depend on the customer, the rural
people," K.A. Babu, head of retail business with Federal Bank, told
IANS.
"The rural folk in India are believed to be in possession
of 65 percent of physical gold in India, mostly in the form of jewels.
They need to move out of the emotional view on gold and see it purely as
a vehicle for investment," Babu added.
In the past year, the
curbs imposed by the government did have an impact. Gold demand, for
example, fell 13.55 percent in volume terms to 842.7 tonnes, against
974.8 tonnes in 2013, while in value, it fell 23 percent to $34.27
billlion, from $44.70 billion.
Data with the World Gold Council
(WGC) further showed that the decline was mainly on account of a
50-percent drop in demand for bar and coins in volume terms to 180.6
tonnes from 362.1 tonnes, as the demand for jewellery actually grew
eight percent to 662.1 tonnes from 612.7 tonnes.
The industry also feels the two new schemes will impact imports further. But by how much?
"Gold
imports will go down by at least 25 percent, if the two policies are
implemented. But the government must include jewellers too," said
Bachhraj Bamalwa, immediate past president of the All India Gems and
Jewellery Trade Federation. Babu felt the schemes can attract up to 100
tonnes.
But Suvankar Sen, executive director of Kolkata-based
jeweller Senco Gold and Diamonds, was not sure about the actual impact.
"The two new schemes will reduce imports. But the people in rural areas
are not quite ready to part with the yellow metal," Sen said.
"Gold
is a reflection of lifetime savings. I am not quite sure how they will
connect to the schemes psychologically," Sen told IANS -- an assessment
shared by Federal Bank's Babu, who said the rural people also saw gold
as something auspicious, easy to trade.
From bankers to
jewellers, there appeared to be some unanimity on at least one major
impact that the two schemes could potentially have -- that of unlocking
the available gold stocks from the people, as also bringing more
investible money into the system.
"The additional money from the
gold bond scheme can cut interest rates for stakeholders, while the gold
monetisation scheme will unlock the savings that people have already
made by buying physical gold," said Vikaas Sachdeva, chief executive of
Edelweiss asset management company.
Explaining further, Sachdeva
added: "As the money under the two schemes will be routed through the
banking system, it shall fall within the purview of the Reserve Bank of
India (RBI). It can then use the usual policy measures in its armour to
control inflation."
According to the All India Gems and Jewellery
Trade Federation, another important factor that must be considered
while introducing the two schemes will be to also include the jewellers,
since they are the ones who deal directly with customers.
"It
will be easier for jewellers to convince the people to melt the yellow
metal for investments and present a fair estimate of gold jewellery.
Tie-ups with banks need to be made beforehand to implement the scheme
through jewellers." Bamalwa said.
