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Industry has to Take the Leadership to Making a Vibrant Gold Industry in India

Rajesh Khosla, Chairman, Emeritus, MMTC PAMP discussed at length about various recommendations made by NITI Aayog on developing a comprehensive gold policy in India during IIGC 2018. Excerpts…

How do you like to comment on tax recommendation by NITI Aayog?

NITI Aayog report runs on 250 pages. It summarizes 62 recommendations. Their view on tax reform is very simple. It says consider reducing the import duty so that smuggling element in the industry can be taken care of. It recommends to consider tax structure in the gold value chain so as to make it more efficient. Aayog says that you must look at enabling of tax compliance rather than mandating tax compliance. If you force somebody to do something, there is obviously a reaction. Rather, if you encourage someone to do something, then there will be co-operation. Aayog is looking at tax compliance from a friendly perspective rather than from a tough regulatory perspective.

NITI made its observation on financializaton of gold. What is your view on this?

Financialization of gold has been discussed in various ways. But, one issue that has not been discussed is collaterised lending against gold what Muthoot or few other guys are doing. That is financialization of gold because you are pledging gold and taking away Rupee. Aayog is looking at financializaiton of gold that people have which are not creating any economic benefit. People are reluctant to pledge their gold because they do not want money in normal circumstances (they are pledging gold only when they need money). Therefore, NITI Aayog is saying how could one can incentivize the holders of gold in simple manner in which a consumer can come with his gold, puts it into some deposit, taking an interest payable at gold and at the end of the interest period, taking back the gold. The issue is here manifold – first is sentiment (consumers paid making charges for gold jewellery and if the same gold is being deposited, the making charges will be lost); secondly, the purity may differ while depositing the same jewellery; third, I may deposit the gold, but next day income tax officials may come to the doorstep and ask for how was this gold obtained? (this gold was not declared in tax return). So, Aayog is saying address these issues; do not expect financialization to happen unless these issues are addressed. Key is the concern in regard to income tax – there is government directive that saysupto 500 gms (it considers as Streedhan) it should not be attached. But, specifically if one encourages financialization, when it is coming for gold monetization scheme, no question will be asked by the authority. It is not a NITI Aayog issue, but it is an implementation issue.

What is your observation on the recommendation of revamping of gold monetization scheme by NITI Aayog?

My view on revamp of gold monetization scheme is very simple. First, a normal consumer does not go to bank for gold, rather he goes to a jeweller for gold. Therefore, if I need to revamp GMS, I need to involve the jewellers. Without involving them, it is very difficult for gold monetization scheme to succeed. Secondly, when I involve jewellers I need to do the concept for ‘gold clearing’. It is like when you have money in your bank account and putting it into deposit, physical rupee is in somewhere else – you can see only the deposit on your statement. Similarly, in the case of gold monetization you need to delink the physical from the account. So, you need to create what we call ‘clearer’ in which rupee is moving to clearing corporation of India, same fashion you need to create a clearing corporation for metal. This will allow entity to handle the physical metal and allow banks to deal with papers. Banks are always happy dealing with papers; it is not the job of banks to handle the physical. In GMS you want banks to handle the physical gold which can not succeed.

What is your view on Make in India?

If you look at refinery sector, the share of refining in India is increasing. Last year refiners contributed 45% of India’s duty paid gold import. This year I am expecting that it will cross 60%. So, every gram of gold that is refined in India, you are creating jobs, the economic value addition is happening within the country, taxes have been paid within the country. Therefore, Make in India for refining is succeeding. It could have been done better if the sector would get some enabling provisions. I think the government has vision to become a refiner of the world and the government is seriously looking at what more it needs to do to encourage (a) more refining in India, and (b) most importantly what we call quality refining. You must have the standard for the gold; the government is in the process of forming the standard. Refiners have to upgrade their technology to able to deliver gold to an impeccable standard.

MMTC PAMP is selling gold through various digital players. Can you describe a bit about the concept of this digitalization of gold?

The concept is simple. Suppose, a person wants to buy gold and he does not know where to go because he will go to a jeweller to buy jewellery and not gold. Earlier banks used to sell gold coins, but they stopped doing it. Secondly, millennials love to do everything in a smartphone. So, you need to give them ability to buy gold on a smartphone to be able to see the balance in a smartphone, to be able to sell that gold in a smartphone and to be able to buy it for a small value. So, when we design out system, we had all these arrangements. You can buy now digital gold from us in one rupee. So, millennials now love it. Having Rupees 500 in hand and one can buy gold through this mean; no jeweller will give gold at that money. More so, when the same person accumulates say about 10gms of gold and goes to a jeweller and tells him he has 10 gms of gold and he wants to encash it and make jewellery. Jeweller would tell transfer that gold into my account and he will make jewellery for the customer. It makes the entire value chain transaction very simple. For doing so, only thing a jeweller needs to have a same account in this process. This is a typical Indian mindset that we purchase gold jewellery, but at the same time, we keep in the back of our mind that if we have a problem, we can sell it easily.

There is recommendation for forming domestic council for skill development and employability. What is your view on this?

We believe that industry has to take the leadership. We should not wait for council to set up to promote skill development. World Gold Council and MMTC PAMP have developed precious metals assay institute, for example. Two companies have invested their money; they have not gone to the government to seek support. The institute has been created and first course is starting in first week of October. We are training assayers for the industry – the entire industry is on board with us, but financial investment is ours. We will train the assayers and then, industry participants will decide whether they want to hire these assayers.


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