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India plans to utilize 20,000 tons of idle household Gold
India could look to strengthen financial products such as e-gold, gold futures and gold exchange traded funds or inflation indexed bonds to curb import of physical gold.
After raising gold import duty to six percent in an attempt to cut down current account deficit, India also proposed plans to utilize an estimated 20,000 tons of gold lying idle with households.
However, no specific plans were announced by the government, leaving traders, analysts and general public to make wild guesses on the type of financial instruments it will introduce to match the returns on gold investments.
Some said that the government could look to strengthen financial products such as e-gold, gold futures and gold exchange traded funds or inflation indexed bonds to curb import of physical gold.
According to country’s Economic Affairs ministry, the government proposed to make changes in the gold deposit schemes and make it more attractive for people to deposit their gold with banks.
The ministry said the government will link Gold Exchange Traded Fund with gold deposit scheme, which will enable mutual funds to unlock their physical gold and invest in gold-linked schemes offered by banks.
The move to link Gold ETF with deposit schemes will help increase physical availability of gold in the market, as a part of the gold lying in stock will be brought into circulation to meet the demand of gems and jewellery trade, the ministry added.
The ministry expected the proposed changes to help moderate import of gold and help bridge the current account deficit.
India’s gold import is estimated at $38 billion in 10 months up to December 2012 from $56.5 billion in fiscal 2011-12.
A 50 per cent rise in import duty is seen important to curb the current account deficit, which has widened to $38.7 billion or 4.6 per cent of the GDP in the first half of the current financial year.
Meanwhile, analysts said gold jewelery and bars are set to get more expensive in the country following the move
However, some others said prices are likely to stabilize in the second half of the current financial year as the rupee expected to appreciate.
Source: BullionStreet
