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Amidst the Covid-19 pandemic and global political, financial uncertainty, gold has caught the investors’ fancy. The prices rallied giving gains to the investors. Arvind Sahay, Chairperson, India Gold Policy Center (IGPC) at IIM-Ahmedabad (IIM-A), shares insights on how gold can contribute to governments revenues. In an interview with BusinessLine, he speaks about what is needed when it comes to sourcing ‘Responsible Gold’ and fair trade practices. Excerpts:
As the largest gold consumer in the world, how can India lead the world for sourcing of ‘Responsible Gold’?
India has a lot to catch up on that front so we are not at a point to lead the world. The developed countries are getting serious about supply chain risks and are passing legislations asking companies to adhere to responsible sourcing. Some simple steps can go a long way.
Firstly, nominated agencies/banks should have a policy of sourcing bars that are from refiners certified for responsible sourcing as per OECD’s guidelines. Secondly, refiners need to volunteer to commit towards conducting the third-party due-diligence audit not only for dore start but also for scrap.
How would we contain the slippages through unorganised sector which is a large part of the gold chain?
The tax arbitrage has opened avenues for gold smuggling. So long as the duty differential remains (currently it is 12.5 per cent) there will be an incentive to smuggle gold – including dore that is of doubtful provenance.
However, the Tax collected at Source (TCS) and e-invoicing have become important means to keep check on the unofficial trade recently, although not fool-proof. Additionally, the mandate to jewellers for being BIS-certified and sell only hallmark jewellery effective June 2021 is a very progressive step.
How do gold refining and spot trade help government to generate additional revenues ?
The focus should be towards getting the trade more organised and bringing standardisation. Similar to making BIS-certification mandatory for jewellers, unregistered refiners should also be brought under the provisions of BIS certification to prevent any unofficial trade labelled as scrap.
Similarly, the E-way bill for bullion transport should be made mandatory, with stipulations that ensure a balance between compliance and facilitation. The Commodity Transaction Tax (CTT) is yet another key point; the volume of tax earnings that it adds to the exchequer is not worth the downside. CTT leads to an increase in the proportion of patient traders and discourages genuine hedgers, both adversely impacting the volumes.
How do you assess India’s current duty structure on gold imports as compared to other peers in the world?
The closest comparison, notionally, is China, where the VAT is 17 per cent for the gold traded outside the exchange. This tax structure encourages transactions on the exchange and discourages transactions outside. In context to overall taxation, we are on par with major trading and consuming nations. Developed or high consuming countries do not charge customs duty on gold and instead collect VAT or GST.
How do you see gold demand in the next decade particularly as an economic safeguard for the governments?
The key parameter is whether the changed international order will lead to a change in openness in trade and finance. We think that it is likely that there will be, relatively, more restrictions. Thus, new avenues of investments will rise. Gold will need to compete more asset classes like cryptocurrenies. Gold’s performance is, therefore, now likely to be mainly dependent on the allocation of liquidity, and the share of other new asset classes such as cryptocurrencies. Thus the price- performance may not be as stellar compared to last decade.
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