The Indian Gold Policy Centre has estimated gold smuggling into the country at 300 tonnes per annum, leading to a revenue loss of ₹20,000 crore as high import duty has led to high unofficial gold trade.

The flourishing unofficial gold trade has cast a cloud on the government effort to organise bullion and jewellery trade, said the IGPC, a centre of excellence at the Indian Institute of Management-Ahmedabad, sponsored by World Gold Council.

Traditionally, lower duty leads to higher revenue collection. This fiscal, the Centre reduced the Customs duty to 7.5 per cent from 12.50 per cent in the Budget, but it levied an additional 2.5 per cent Agriculture Infrastructure Development Cess and 10 per cent Social Welfare Surcharge on the customs duty.

This resulted in the duty being reduced by only two percentage points including GST compared with 16 per cent before the Budget.

Bullion bank

Calling for a dedicated Bullion Bank to conduct transparent transactions even at the retail level, IGPC said the government should create market infrastructure institutions and facilitate their sustained growth through policy measures.

The International Financial Services Centres Authority is a great start but it can succeed only if there is an infrastructure of bullion banking in the country.

The hesitation to allow banks get into the bullion banking and make that as an important business unit of a bank was visible in the amended GMS (gold monetising scheme) released by RBI in April.

Central banks have to be risk-averse but that doesn’t mean an approach with a calculated risk with downside floor levels built into the design should be ignored.

There should be a starting point towards creation of bullion banks in the country, an ideal approach would be to allow a few select banks be licensed as bullion banks based on their risk management, compliance processes and size of the balance sheet, it said.

Way forward

There is an urgent necessity to create policy measures that incentivise honest businesses especially when they have complied with all the requirements to integrate themselves into the formal markets.

Both the government and the industry have a key role in building a trust-based eco-system that can help the Indian gold industry achieve its full potential, said the report.

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