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India Now Needs a Comprehensive Gold Policy: SBI Report

India now needs a comprehensive policy on gold to clearly define whether gold should be treated as a commodity or money, and how customers should perceive it, stated a report by the State Bank of India (SBI).

East vs West: A Tale of Two Perceptions
The report pointed out that perceptions of gold in the East and the West differ significantly. It noted that in Western countries, gold has achieved the status of public property, while in the East, particularly in countries like India, Japan, Korea, and China, gold continues to be viewed as private property.

Current Policy Focus: Demand and Recycling

Currently, India’s gold policy focuses mainly on reducing demand and recycling existing gold stocks for productive use.

The report highlighted that since gold represents a source of funds without directly contributing to capital formation, monetizing gold can have a positive impact on future investments.

Comparing India and China’s Gold Strategies
SBI also compared India’s position on gold with that of China. The report showed that China’s central bank holds around 2,300 tonnes of gold, while India’s central bank holds about 880 tonnes. China has a stated central bank policy on gold, whereas India’s is not specified.

Household Holdings: A Stark Contrast
In terms of household gold holdings, Chinese households hold less than 10 grams on average, with a target of 20 grams, while Indian households hold over 25 grams. China has a defined household policy on gold linked to current account trends, but India’s policy remains need-based.

Banking Role and Supply Chain Differences
Commercial banks in China are involved in gold operations at various levels along the production and supply chain. In India, banks are largely restricted to financing the gems and jewellery sector, exporters, and gold deposits.

Production and Reserves: Untapped Potential in India

In terms of production, China is the largest producer of gold in the world, with rapidly developing assaying facilities. India’s domestic production is smaller, but reports from the Geological Survey of India (GSI) indicate large gold deposits in Madhya Pradesh, Odisha, and Andhra Pradesh.

Global Presence: China vs India
China also has a strong international presence as a member of the London Bullion Market Association (LBMA), while India, though not a member, remains one of the largest exporters of gold jewellery in the world.

Historical Policy Approach: A Short-Term View
According to the report, this situation has arisen because, since Independence, India’s policies on gold have revolved around six main elements, encouraging people to invest in other asset classes, regulating gold supply, curbing smuggling, reducing household demand for physical gold, keeping domestic gold prices low, and ensuring exchange rate stability and financial balance.

However, the report observed that most of these measures were short-term in nature and aimed primarily at reducing physical gold demand. Only three reports, the RBI’s internal report in 1992 and two Tarapore Committee reports, attempted to take a long-term view.

Need for a Long-Term Vision
The report added that the geopolitical importance of gold, which is now central to global economic discussions, was not given enough attention in earlier reports.

It also pointed out that past policy interventions did not consider the views of the gold industry, which provides significant employment, both directly and indirectly.

The Way Forward
Hence, the report concluded that it is time for India to adopt a comprehensive and long-term approach to gold policy, one that considers its economic, cultural, and strategic significance.

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