Despite bolstering an annual demand of 800-900 tons, the Indian gold market is unable to realize its potential, says Rajesh Exports MD, Mr Rajesh Mehta. He believes that the reasons behind this are the various challenges faced by the industry. The lack of quality assurance, weak price transparency, fragmented liquidity and regulatory issues are some of the roadblocks faced by the Indian gold markets.
With gold spot exchange allowing market participants buy and sell gold in T+2 (Trade plus 2) settlement cycle, the industry is likely to witness a better transparency in pricing. The introduction of multiple reforms and initiatives like the Pradhan Mantri Jan Dhan Yojana, Digital India, demonetization, RERA, and Goods and Services Tax will further boost the sector by bringing tax accountability to the Indian economy.
The Indian government’s move to address problems related to the gold market by launching schemes, such as gold monetization, sovereign gold bonds, and introduction of Indian gold coin are playing an important role in transforming the gold market.
According to the Rajesh Exports MD, a spot gold exchange can further help in gaining trust of the participants by adopting the best international experiences. It has the potential to create a transparent price detection mechanism for the participants and consumers.
A spot exchange can also function as a facilitator to organize the scrappy gold market in India by bringing a number of key players on the same platform. It can allow players across the chain to source gold without going through a number of layers of mediators. The gold-backed products will be launched more effectively by the financial institutions. The development of the domestic refining and gold scrap market will also be supported by the exchange, steadying the impact of gold on CAD.
Mr Mehta says that the exchange’s own website can be used to spread the information on latest realized price. The information can also be spread through the data service providers and news, to sustain a storehouse of all trades for the purpose of reporting.
Most of the international gold exchanges offer very few standardized contracts to warrant enough liquidity and calibration in trade. To simplify access to a larger user base and permit a truly domestic flair, the exchange network must include all the important local hubs for supply.
The exchange will permit validation of the Indian gold market, improving price transparency and tax compliance. It will also help the government administer the gold trade. Rajesh Exports MD, Mr Rajesh Mehta believes that the spot exchange, surrounding a broader ecosystem for competent trading of gold, has the potential to play a major role in reforming the gold market in India.