The India Bullion and Jewellers Association (IBJA) and All India Gem and Jewellery Domestic Council’s bid to make all gold jewellers quote the same rate for gold across States — ‘one nation, one rate’ — underlines the problems faced by consumers in dealing with non-transparent pricing of gold jewellery. Though India is the second largest gold consumer with annual demand of over 800 tonnes, consumers do not have any official reference rate with which they can verify the rate quoted by the jeweller. That said, while a single rate across the country is certainly needed, it needs to be discovered under regulatory supervision and cannot be left to industry associations.

Currently many jewellers use the reference price fixed twice a day by the IBJA. This price is fixed based on the average of the buy and sell quotes from ten of the biggest gold dealers in the country. Since most of the gold consumed in the country is imported, the dealers use the international price of gold as the base, translate this price in rupee terms, add tax and pad the price further to add their commission to arrive at their quote. But such fixing of gold prices is open to manipulation and misuse as was seen in the London gold fix scandal in 2013. There is a need to provide consumers with a transparently derived domestic reference rate which is under regulatory supervision.

Meanwhile, facilitating trading of physical gold on Indian commodity exchanges has been under discussion for a while now. In 2018, then Finance Minister Arun Jaitley announced that a regulated spot gold exchange will be set up to address the issue. The 2021-22 Budget took the idea forward by proposing the launch of electronic gold receipts. This allowed investors and business entities to deposit their gold in vaults and to trade the EGR issued by the vault in stock exchanges. These EGRs could be converted back into gold whenever needed. But two years after launch of these instruments, not much headway has been made with investors largely staying away. Lack of awareness among investors regarding the benefits of EGRs including standardisation, transparency, ease of storage and conversion could be one reason for the apathy. But the costs associated with EGR with investors having to pay securities transactions tax, the cost of assaying, storage, delivery of gold, could be making it unattractive when compared to other forms of non-physical gold such as gold ETFs and sovereign gold bonds.

The Centre and SEBI can try to bring down the costs for the investors to make the EGRs more attractive. Stakeholders also are of the opinion that the GST of 3 per cent that must be paid while moving gold out of bank vaults to be deposited in exchange-designated vaults, is turning out to be a burden. The GST credit can be claimed only when the receipts are converted back into gold. Tackling these issues could help in discovering a reliable rupee-denominated gold price on exchanges.