Indian’s fondness for gold is an established fact; still the country is majorly dependent on imports to meet the domestic demand. Precisely, 98 per cent of the demand for gold is catered by imports, while the remaining is met by the recycled gold. Last year, India imported over 926 tonnes of gold, which is quite a massive figure.
Ironically, even with such huge appetite for gold, India has no standing in the international market when it comes to manipulating global bullion prices.
Conversely, our adjacent neighbor and biggest competitor, China, has already debuted into the global bullion market. Recently, Bank of China, along with ICBC Standard Bank and China Construction Bank were elected as members of ICE Benchmark Administration (IBA), which controls the London Bullion Market Association (LBMA) Gold Price.
Furthermore, China has successfully established its own gold price fixed in Yuan, noted as the Shanghai Gold Benchmark. With this the market contributors get an alternative price fixing mechanism in a different currency, thereby putting monopoly of the LBMA Gold Price to an end.
Siddharth Mehta, Chief Strategist of Rajesh Exports Ltd said, “It is high time India should become a price influencer rather than a price taker in the global bullion market.” He went on to say that to achieve this, India will have to develop and foster its domestic bullion market, which is currently an uncontrolled entity.
At present, challenges like inexistence of a transparent price discovery mechanism, standardization in the quality of gold and insufficiency of transparent trading market, all are leading to a trust deficit in the country. Globally, such scenarios have often been bridged by the vigorous participation of banks in the domestic gold market.
In India, banks and other financial institutions are the foundation of the financial system. However, unfortunately they have no provision for gold monetization. In fact, the global set up is different to this scenario.
If Reserve Bank of India (RBI) plans to issue guidelines for a bullion bank, India will surely play a dominant role in the global bullion market in due course. With this timely policy implementation, India can soon establish its own bullion bank, taking part in the global price discovery mechanisms.
“Given India’s affinity for gold, the country should have been a global bullion market leader. Hopefully, establishment of a bullion bank will be a significant step in this direction,” Siddharth Mehta further explained.