Bullion exchange proposal in Budget 2020 raises hope for increased gold imports

The Union Budget’s proposal for an international bullion exchange at the financial hub in Gujarat’s GIFT City has made businesses hope that the rules will be relaxed to allow gold import once that bourse starts trading.

Finance minister Nirmala Sitaraman said the exchange at the international financial services centre (IFSC) will be an additional option for trade for global market participants, and it’s expected to be ready in the financial year 20-21. The exchange, once it gets regulatory approval, will be used to import gold and it will move the industry to develop related support systems like testing labs, vault companies and warehousing.

Two international companies have already got licences to set up vaults in India. Industry experts aver that this will soon be followed by labs and refineries to be set up in GIFT City to test and process imported dore (unrefined gold) that can be then sold at the upcoming exchange, which will also promote exports of gold bars.

India discourages export of gold bars by asking for a higher value addition than global standards, but industry observers hope the new exchange will change that. “The establishment of regulated International Bullion exchange in GIFT City in India is a positive step towards making gold a mainstream asset class. With its unique locational, infrastructural and regulatory advantages as an IFSC, GIFT city is well placed to build a fair, efficient and transparent bullion trading ecosystem. An organised bullion trading system will benefit the entire supply chain particularly, small players and exporters,” said Somasundaram PR, Managing Director, India, World Gold Council.

The India Gold Policy Center (IGPC) at Indian Institute of Management, Ahmedabad, last August submitted a report recommending a gold spot exchange in the country. An exchange, encompassing the entire ecosystem of trading and physical delivery and located in or close to an SEZ, could reform and transform the gold market in India, IGPC said.

An exchange at IFSCs has two big advantages: a regulatory regime that provides global credibility, and sufficient exemptions from capital controls to make the global contract feasible. IFSC is in the process of setting up a unified regulator to ease approvals for all businesses at the hub.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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