Economy
RBI's Gokarn for dematerialisation to arrest rising gold demand

While global gold output has stayed stable at around 4,000 tonne per year, the domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices, which is compounding the troubles for the central bank

 
Pune: Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said there is a need to 'dematerialise' gold like any other financial product to reduce its physical imports, the rise of which has been blamed for the high current account deficit that is feared to touch new record high this year, reports PTI.
 
"It (high gold imports) is creating some macroeconomic stresses and so the challenge is to find ways to replicate the financial characteristics of gold without necessarily causing physically importing," Gokarn told the last day of the two-day annual Bancon.
 
The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising oil and gold imports.
 
Reeling out the high gold import data, Gokarn said a working group headed by KUB Rao of RBI will shortly be coming out with its report on the ways to deal with the problem arising from high gold imports on macroeconomic front in the form of balance of payments.
 
He said while global gold output has stayed stable at around 4,000 tonne per year, the domestic consumption of the yellow metal has doubled to 1,000 tonne annually since 1999, despite a massive rally in the prices.
 
"More expensive gold is being imported in larger quantities which is compounding the troubles," he said.
 
As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the Reserve Bank has unveiled a slew of curbs on gold purchase and financing.
 
Last fiscal, there was a 39% rise in gold imports and in gross terms, it constituted for 80% of the current account deficit, which reached an all-time high of 4.2%, Gokarn said, adding the net gold imports constitute for 1.8-2.4% of GDP.
 
This spike in gold demand was in spite of the record price rally that the metal witnessed last fiscal.
 
It can be noted that in April the RBI brought down the loan to value or LTV that gold loan companies like Muthoot Finance or Manappuram Finance could offer just 60% of the market value, from a high of 85-90%.
 
In the 30th October credit policy, the RBI also banned banks from funding gold buying by gold loan companies and NBFCs.
 

User

COMMENTS

Veeresh Malik

5 years ago

With all due respects to the gent suggesting demat on gold, the experiences people have with other demat saving products like equity, non-bank savings like EPFO or Mutual funds, or similar, is so miserable that placing hard solid gold on demat is like seeing the buffalo gone into the lake, to use a turn of phrase.

In troubled times like this, it is back to pure hard physical gold, or fixed deposits with banks. Even real estate is no longer the safe bet it was, clear title being a myth soo very often.

Parliament nod needed on FEMA rules for implementing FDI: CAIT

According to the Confederation of All India Traders, the union government's notification on FDI in multi-brand retail will be valid only if amendments made by the RBI in FEMA rules

 
New Delhi: The foreign direct investment (FDI) notification on multi- brand retail by the government will be valid only if amendments made by the Reserve Bank of India (RBI) in the Foreign Exchange Management Act 1999 (FEMA) rules are approved by Parliament, the Confederation of All India Traders (CAIT) has said, reports PTI.
 
"The FDI notification can be valid and effective only if the amendments made by RBI in rules and regulations of Foreign Exchange Management Act,1999 (FEMA) are approved by "each house" of Parliament which is an inherited provision in Section 48 of the FEMA Act," CAIT Secretary General Praveen Khandelwal said in a statement.
 
He added that the said provision is explicit and does not have ambiguity or discretion.
 
"The government is terming it merely as an executive order which does not need approval of Parliament is factually a distortion of facts," Khandelwal said.
 
The statement said that CAIT in a communication to all Parliamentary Party Leaders has drawn their attention to the provision of Section 48 under which such amendments must be passed within 30 days from the date of its introduction in Parliament.
 
As per parliamentary procedure any such amendment will go to Committee on Subordinate legislation of each house which will scrutinise the same and will submit its report to Presiding Officer of their respective house and then house will decide the issue, it said.
 
Khandelwal said that calling the notification an enabling policy for the states to decide whether to implement the same or not is misleading.
 
The statement said that the GATS agreement under WTO and 82 Bilateral Investment Promotion Treaties signed binds the Government to provide "national treatment" to foreign investor which implies that no discrimination can be made between a domestic company and the foreign investor.
 
"Therefore, the states have no choice," it added.
 

User

Allowing banks to buy back gold could curb imports: SBI head

Banks are not allowed to trade on the commodities market, including gold, as the regulator and the government fear that their entry could spike inflation that too when all banks are selling gold, but are not allowed to buy back the same

 
Mumbai: The Reserve Bank of India (RBI) should relook at the ban on banks buying back gold as such a move could improve liquidity in the system, increase supply of the metal and bring down imports, said Pratip Chaudhuri, chairman of State Bank of India (SBI).
 
Banks are not allowed to trade on the commodities market, including gold, as the regulator and the government fear that their entry could spike inflation.
 
"The existing ban is impeding the liquidity of gold holdings in the country. Today all banks sell gold, but the RBI does not allow them to buy back their own gold. Suppose, somebody has taken gold from my bank and the same gold, even without opening the seal comes back to me, I cannot buy it back", Chaudhuri said, addressing a panel discussion on gold imports at the second day of the national banking summit Bancon.
 
"What could be the underlying thought? Don't you think it is impeding the liquidity of gold holdings in the country," Chaudhuri asked RBI deputy governor Subir Gokarn, to which he responded that the RBI could revisit the subject once the BKU Rao report on the subject is submitted.
 
"Obviously, we have to reconcile to the existing regulatory barriers. Once we have feedback on the points, we will come for debate," he said, adding that the RBI panel would shortly elaborate on ways to deal with the problem arising from high gold imports on the macroeconomic front, in the from of balance of payments.
 
Experts blame rising gold demand, price rise and the resulting surge in imports to hoarding by jewellers and other market participants.
 
Gokarn called for dematerialisation of gold to arrest rising gold demand, as rising imports of the metal has been blamed for the high current account deficit feared to touch new record highs this year.
 
The current account deficit or CAD has been rising on the back of record trade deficits, which in October jumped to a 12-year high of $21 billion on the back of rising crude oil and gold imports.
 
He said while global gold output has stayed stable at around 4,000 tonne per year, domestic consumption of the yellow metal doubled to 1,000 tonne annually since 1999, despite a massive rally in prices.
 
As gold imports touched a record high last year, pushing up the current account deficit to a historic high of 4.2% in the year, the RBI unveiled a slew of curbs on gold purchase and financing.
 
Last fiscal, there was a 39% rise in gold imports and in gross terms, it constituted for 80% of the current account deficit, which reached an all time high of 4.2%, Gokarn said, adding that net gold imports constitute for 1.8-2.4%t of GDP.
 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)