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India International Gold Convention 2018: Highlights

Below isthe highlights of the various sessions at IIGC 2018. The second part of the highlights will appear in November issue.

Excerpts from inaugural session:

“We are already in the process of setting up a domestic gold council, first time in India. The idea is to promote domestic industry in this sector. I am sure you all will benefit from it immensely. Please take advantage of it. Jewellery, Gold and Diamond are all very labour intensive businesses. We want to promote them in a big way. Help us by participating in this endeavor.“ --Shri Suresh Prabhu, Honourable Minister for Commerce and Industry & Civil Aviation, Government of India (excerpts of recorded video message).

“We have a government which is embracing change, not just any change but transformative changes. The introduction of one of the biggest economic reforms for a country of this size, GST, has been largely smooth and has brought the entire industry under one umbrella of taxation for indirect taxes. Similar are many other transformative changes such as digitization of transaction medium, enumeration of persons and trying to make persons accounts identifiable. These changes are actually transforming the very basics of how the economy works. It is in this context the gold industry is also being viewed at because when you view an industry which has multiple players, mostly MSMEs with few very organized players, you don’t get a full view if you look at it with a single lens of balance of payments. The Niti Aayog report, was named “Transforming India’s Gold Market”. We wanted to have comprehensive idea on how this industry works, how the various stakeholders are placed and how are their aspirations going to reflect upon one another because there are conflicting aspirations also. As a Government, we have to take a balanced view. It in this context, the finance minister in the last budget speech has mentioned the need for a comprehensive gold policy and to develop gold as an asset class.”

“There is lot of movement for making India a refining hub for the entire world. There is definitely a potential. Of course, this requires multiple steps. One is about having internationally recognized standards. The Government is already working with the BIS and other agencies where we are trying to equip our refineries to gear-up to international standards. We will be able to setup the system within a few years.” – Mr. Senthil Nathan S, IRS, Deputy Secretary, Ministry of Commerce, Government of India.

“We have to work on getting bank financing for gold Dore & gold bars business. Currently we don’t have the facility. For some people, even opening new accounts is a challenge. Second, R&D and investment in mining sector. In India, we have around $400 billion worth of minerals. China, within 10 years, invested in developing their mines and increased their own gold production. As on today China’s annual gold production is about 450 tons, highest in the world. So, why can’t India do the same with proper R&D and mining policy? Our PM has the dream of Make in India. India has all minerals like gold, diamond, colored stones, base metals and so many other minerals. So we should definitely consider focusing on developing gold mining sector.

The present government listens to all suggestions and takes necessary action and quick decision. We thank the government for the same. The effective import tax has increased from 11% (10% customs duty + 1% VAT) to 13% (10% customs duty +3% GST) after July 2017. This has increased incentives for smuggling and has put a lot of pressure on legal businesses. Government should take steps to ensure legal and compliant businesses are protected.“  –Mr. Prithviraj Kothari, Vice-President, IBJA

“The Council is organizing the 2nd edition Gold and Jewellery Summit in November. Recently we organized training in remote areas of Sindhurg and other places on jewellery manufacturing. It is the dream of Honourable Commerce Minister to take technology to remote areas. Ministry of Commerce is contributing to setup common facility centers across the country. mapping of clusters around the country is going on. There will be about 135 centers across India. We will put the latest technology and provide need-based training specific to the area. India has so much art. We need to bring them to the forefront with technology. We have five Gem and Jewellery Institutes in the country. The sixth is coming up in Udupi very soon.”—Mr. Pramod Agarwal, Chairman, GJEPC

“In the recent past, MCX introduced gold and silver options to serve the hedgers. We eagerly look forward to exchange traded funds based on gold futures and mutual funds participation. The participation of bank subsidiary is already been permitted. Most of the leading ones have become members. We eagerly await the implementation of Niti Aayog recommendations, especially financialisation of gold. We support the development of gold as an asset class and await further decisions on the regulatory contours of the gold spot exchange.” Mr. Shivanshu Mehta, MCX

“The starting point always is the reality needs to be acknowledged. In my view, the reality is that we are not looking at the domestic consumption of 800 tons. I think it’s more like 600 tons.  Even if we have argument on whether its 600 or 800 tons, it is not a business that is going to 1600 tons. I think we all can agree on that. This is a cause of concern. Luckily, there are some solutions. First, working with Government to bring about some policy changes. The Government has been extremely responsive and supportive.  The second point is change from within. As an industry, we need to change and we need to embrace new products and new partnerships. We have to step outside of our comfort zone. We have to be able to embrace new products. We have to embrace partnership outside of the people we know. We have to get more people in, perhaps those who never worked with gold before.” Mr Arjun Raychaudhari, MD & CEO, MMTC PAMP India Private Limited

“Let’s focus on industry level issues. Are we doing those which are within our control in the most effective and most professional ways? Here, I’m talking about things like quality, marketing, addressing millennials etc. We still market the best of hand crafted jewellery worked on by a minimum of three people, on gold price plus labor charge basis. In every other category, hand-made goods such as a hand stitched shirt, a handmade leather shoe, command five times the price of a machine-made stuff. I think these are matters within the control of the industry. If we are good at selling gold jewellery to our millennials in India, I can assure that you will crack the export market - not only to Indians living abroad but to foreigners- as well. First let’s get our house in order. Certainly, we will have a lot to discuss with the government. The thinking in the government is changing about gold. It is lot less unfriendly now.” Mr. P R Somasundaram, MD- India, World Gold Council.

 

 

Excerpts from panel discussions:

Changing import scenario and the change in role of supply chain participants

“I would like to say that it is RBI which asked nominated agencies to import gold. If the trend continues and government permits import of dore as commodity, then the role of nominated agencies ceases to exist. Till then, we should take the view of wait and watch”.-Mr. Nirakar Chand, Diamond India Limited

”Change is not new for banks. Yes, banks have to look at new opportunities in respect of products and services across the value chain. Products like dore financing or tying up with overseas counterparts to structure products at local level and so on. When there are challenges, opportunities also come along. Banks have to reinvent themselves. Key is to involve in local business.”- Mr. Johnson Lewis Scotia Bank

“OECD standard is developed by business and for business and was developed to be practically implemented. Nobody expects one hundred percent compliance in gold business overnight. It is about progressive approach. It is about understanding what you can do depending upon the size of the company. The actions initiated should be publicly reported. It is about achieving slow, progressive compliance.”—Mr. Rishad Abelson, OECD

“In India, bullion dealers are the people with liquidity. Refiners can’t go to banks, nor else anybody can go to banks. So, we are the people with liquidity and that’s how we do it. I guess we have to innovate in trying to build a bridge between jewellers and the refiners or the banks. “ Mr. Sunil Salunkhe, SJS Gold Pvt Ltd

“The right time for doing away with duty differential between dore and standard gold import is when the banking system in India will get its acts together and provide the entire range of bullion banking services so that whether I am a refiner in Switzerland or in India, I have an access to the same level of facilities that I would get if I would have been in Switzerland. The time to really ask this question is am I giving you the bullion banking services, am I providing you the global level playing field. That time I would say yes and till then refiners have lots of issues. I would really link it to the availability of bullion banking in India. Bring bullion banking to India and remove the duty differentials.” Mr. Rajesh Khosla, MMTC PAMP

Discussion on Niti Aayog Recommendations on Make in India

“Make in India is Prime Minister Shri Narendra Modi’s flagship initiative. Initially, Gems and jewellery sector was not included in it. Even today it is not in the list of priority sector.”—Ms. NirupamaSoundararajan, Phale India Foundation

“We have been presenting to government how dore could be treated at par with bullion import so that there remains no ambiguity. Second, players here work in different ways. The quality and consistency of output from some refineries may raise questions. That has to be addressed.

Until and unless we have a proactive monitoring, standard cannot be developed. We need to address this strongly.”- Mr. Vipin Raina, MMTC PAMP

“In UK, hallmarking centres are completely independent and focus is on the retailers. If it is focused on manufacturer, it has nothing to say what will happen when jewellery reaches customers. It could be altered, modified. So, onus has to be focused on retailers making sure produce is tested and hallmarked correctly. Conceptually system in India is based on the UK model. However, there are differences in the way the system is implemented here. In UK, we follow UK Hallmarking Act. We are also member of Vienna Convention of Hallmarking of Precious Metals Articles. If there are less number of hallmarking centres in India, I think it can be properly policed by the authority which may create far more efficient system. Supply chain efficiency also needs to be improved.

The key point really in Indian perspective is that if you are able to accede to the Vienna Convention, establish Indian products with internationally recognized hallmark, it will show that Indian goods have achieved the international standards and that will open the door for export to other countries outside of the Convention.” – Mr. Doug Henry, ACG

“Where UK is different from India is on the question of ‘traceability’. In UK, the details about where a piece of jewellery was hallmarked can be verified in two minutes. That traceability feature is missing here.”—Mr. Harshad Ajmera, Indian Association of Hallmarking Centres

“Retailers should maintain a robust compliance in place before selling a piece of jewellery to customer. It is also the responsibility of the hallmarking centres to maintain the purity standard.” – Mr. Abdul Nazar, Malabar Gold Private Limited

“India has huge skill base. Every region has its specialty. However, we are lacking in design, quality, and techniques. If we could improve on these and provide proper training to goldsmiths, we can definitely export more. Lot of untapped markets are there – Africa, Far East, Middle East etc. where we can export a lot.” – Mr. K Srinivasan, Emerald Jewel Industry

“Broadly, we bring three things to any ecosystem. First is massive scale. We have 100 million user base. So we bring massive scale to any player we partner with. It allows our partners to tap the large ecosystem for distribution. Second is the real consumer DNA. For example, lot of references were made yesterday about millennials. We bring that DNA which allows our partners to reach targeted customers in a relevant manner. Third is the speed of disruption. We have all been experiencing the disruptive models powered by technology. We bring that power to any space that we play in. UPI has been very disruptive space in payment landscape in last two years. We can do the same in gold market. We have already started by partnering with couple of suppliers like MMTC PAMP as well as SafeGold. We have been very pleasantly surprised with the adoption that happened.”- Mr. Karthik Raghupathy, Phonepe

Discussion on Niti Aayog Recommendations on Spot Gold Exchange

“Currently,small jewellers face problems in opening a bank account and KYC. So, if spot exchange comes, it will benefit them the most. They will get benchmark price, metal with assured purity and transparency. At present, you will find a small refiner in every corner of the country. Still getting guaranteed purity is the major issue. Gold of different purity is available in the market because there is no benchmark. If spot exchange comes, then there will be one benchmark. Financing will be available and location swap will also be possible. However, we also have to remember that if all transactions do not take place through spot exchange, then it will be too difficult to manage.”– Mr. Prithviraj Kothari, RSBL

“A regulator is the key thing. Today, all exchanges are regulated by SEBI. So, to run a spot exchange, there is need for a regulator. Other than that technology and delivery functionality already exist.”—Mr. Shivanshu Mehta, MCX

“Going forward, if we are going to set up a new exchange that we are talking about, pivotal will be strong legal/ regulatory framework backed with a governance model. We have to be agnostic to the views of the participants. We have to always keep in mind the interest of the market at large, and most importantly, how do we democratize it. It is all about building a complete ecosystem.”—Mr. Nagendra Kumar, National Stock Exchange (NSE)

“We have the infrastructure. If we decide to start the exchange today, we can set up base in at least 50 locations in next 30 days. So, it is possible. But, we have to do few more things if we want to go beyond 50 odd cities. We can definitely evolve and reach those towns.” Mr. Sharad Jobanputra, Sequel Global Critical Logistics

“Regulation, compliance and financing are some of the key components that will make the spot exchange robust. It is an all evolving practice which will deliver a good result.” Mr. Chirag Thakkar, Amrapali

“By design, GIFT International Financial Services Centre is a zone where some of the benefits have been given. For example, there is zero tax, zero GST inside. Even RBI has mandated that banks inside the financial centre should be treated as offshore branch and therefore, capital account convertibility for the businesses will be smooth. Now coming to the gold sector, whatever ingredients the Niti Aayog has recommended for spot exchange, all are currently available in the GIFT financial centre.“– Mr. Dipesh Shah, GIFT City

“With GST is in place, when spot exchange comes, you can imagine one benchmark price for the entire country and not only that, delivery can be done on the same price to any corner of the country. This could be the first step towards price setting of gold in India. Secondly, in the smallest cities in India where people look into price but unable to trade, they will become an important part of the spot trade. Third, through a spot price, one can channelize entire monetization of gold. So, in nutshell, when we talk about gold spot exchange, it is not only about giving and taking delivery, but also a means to offer all forms of financial instruments pertaining to yellow metal.”Mr. Sameer Patil, Bombay Stock Exchange (BSE)

“Every exchange in the world has been exempted from taxes on spot trading in bullion. If GST is levied on transactions in spot gold exchange it will be a show-stopper” – Mr. David Gornall, LBMA

“Monopoly happens when there is no competitor or competition. Here in spot exchange anybody can participate and therefore, everybody has a chance to grow. So, question of monopoly does not arise.” – Mr. P R Somasundaram, World Gold Council

In short, it is actually the competition among asset classes particularly in a declining gold and silver market that prevents people buying the precious metals.

Primary silver has 35 percent market share and the global average cost of production is coming around $9/oz. - Cameron Alexander

FED is still saying that mutual long standing rate would be below 3 percent. In my view long term neutral rate could be around 3 percent. – Marcus Garvey

“Being in the industry and talking to the people around, my estimate is probably $17.75 to $18.00/oz at later part of this year. personally, I am very bullish on price and consumption expectation. – Vijay Murthy, Vedanta

We have calculated average price of gold for the full year could be around $1340/oz. – Cameron Alexander

 

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