A one-time capital gain exemption for gold may be a good incentive for the revival of small businesses.
The Indian gold industry has grown tremendously since the withdrawal of the Gold Control Act in the early 1990s. This growth has brought in better accessibility and availability for consumers with a jewellery store in almost every nook and corner of this vast country. It has altered the in-store jewellery buying experience and has touched as many households as well as banks. But at one level, the industry is perceived as having fallen short of expectations in many aspects, more particularly in building trust and transparency comparable with global standards. It has also not been able to market its centuries-old handcrafting skills underpinning its success to dominate manufacturing and become an export powerhouse.
The image of the industry suffers frequently due to the actions of a few and does not do justice to the inherent economic potential of this large industry. A strong self-governance framework supported in unison by all groups in the industry is absolutely necessary to create a sustainable future when the demand has dropped by a third since demonetisation and other broader economic reforms.
Since 2015, there have been some important reform announcements in every alternate Budget, some structure for ease of business and some intended to increase domestic supply or capture gold-focused investments through the organised financial system. But the implementation of many of these has faced operational difficulties. The lack of a coherent policy on such an important channel of savings meant that import control — without a credible mining or recycling supply from domestic sources — is sought to be achieved through higher and higher taxes, leading to unintended consequences and essentially discouraging the compliant.
Progress on fundamental reforms has been slow so far. But there are signs of change, with mandatory hallmarking effective June 2021, an International Bullion Exchange that can make India take centre-stage in global gold trading with world-class trading and vaulting infrastructure in GIFT city, Good Delivery Standards with responsible sourcing and gold-related PMLA guidelines on par with global compliance. However, a lot more actions are needed in a coordinated manner to make the industry an export engine and a reliable trading hub in the world.
Budget 2021 should task a clear timeline for execution of what has already been announced. Gold is too important a savings tool for Indian households to be excluded from mainstream discussions. As the best performing asset class in 2020, it has ensured that household wealth was protected during this pandemic. Gold should not be left as an alternative to mainstream savings any longer if the economy has to benefit from the huge stock of 25,000 tonnes India has accumulated thanks to our native wisdom!
As for the Budget, putting more money in the hands of consumers by reduced taxes should be good for gold as it increases disposable income and part of such savings will flow to gold. A huge incentive for digital payments towards gold could be a credible first step towards financialising gold as people are encouraged to use digital means to buy and pay for gold. As gold prices have gone up by over 32 percent, many small businesses may fall back on household gold savings to recapitalise their business.
A one-time capital gain exemption for gold may be a good incentive for the revival of small businesses. Along with this, a phased cut in duty on gold could be announced which will attract more recycling. A massive innovation programme for the jewellery industry, underpinned by technology, could leverage cross-industry synergies to give our skill base a breakthrough, thereby enabling India’s gold sector to become the “Jeweller to the World”.
The writer is Managing Director, India, World Gold Council.
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