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To curb gold imports and bring down trade deficit, a Reserve Bank of India panel has suggested a host of demand reduction, supply management and gold monetisation measures. The panel wants higher import duty on gold imports. However, it also cautioned that beyond a level, raising the import duty may lead to buyers turning to unauthorised sources. Documentation of gold sales and purchases has been emphasised.
The panel has suggested that carrying of gold and jewellery by Indians coming from abroad could be made a less attractive option.
Products analogous to inflation indexed bonds may be considered. These instruments will offer real rate of return, thereby addressing the issue of clamour for gold (which is used as a hedge against inflation) imports.
There is a need to consider introducing new gold-backed financial products to reduce demand for physical gold.
The products that could be considered are: Modified gold deposit scheme (gold taken as a deposit is recycled for meeting domestic demand and given back at the time of maturity), and a gold accumulation plan (a saving plan catering to even small buyers). The panel has also suggested two other products — gold linked account (the entire transaction takes place outside India and import of gold is not involved) and gold pension product (the customer surrenders gold to the bank and receives monthly pension till his death).
Supply management
The panel has suggested channelling existing supplies of scrap gold (some items sold as scrap gold include broken gold jewellery, gold coins, and gold wire) into the financial system so that gold can be turned into a financially productive medium.
A part of the total corpus of gold exchange traded funds could be lent to bulk gold importers. This would increase returns on these funds and the demand for imports gets postponed.
Monetisation of gold
The panel said there is a need to liberalise gold loans by banks and gold loan non-bank finance companies to increase monetisation of idle gold stock. Gold loans may be given for all productive purposes.
Bullion Corporation may be set up. It will function as a backstop facility for liquidity for lending against gold or as a refinancing agency.
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