PRE-BUDGET VIEWS AND SUGGESTIONS

The most discussed topic of this month is the “Budget” and how it will affect the commodities  business. Lately, I have been asked about my views and expectations from this year budget. I would like to put forward the following points-
Expectations are high for a massively reformist Union Budget that would give the somnolent economy the jolt it badly needs.

There are quite a lot of aspects that need immediate consideration for action as the bullion industry has been suffering a lot due to the current norms and practices.

budgetResearch & development is the key to the future of Indian bullion industry. Data by China Gold Association (CGA) shows China produced 451.8 tons of gold in 2014, up 5.52% year on year. It has been the eighth consecutive year for China to become the biggest gold producer globally.

Primarily, there is a need for R&D to be carried out in an efficient way in the country, which will increase production of the metal. This will reduce dependency on imports and in turn help the government to increase the forex reserve. As the metal will be extracted locally, customers will be benefitted pricewise, due to local production.
R&D is costly which requires huge investment, but with the help of FDI we can surely work out the way to get the most out of it. In turn, FDI would help in strengthening our rupee and in turn reduce the depreciation of our currency.
We expect the following to be executed immediately and in a short period of time.

a.    GST implementation is a must: If implemented, it is expected to provide a significant boost to investment and growth of the economy. GST will have a significant impact on almost all aspects of businesses operating in the country, including the supply chain, sourcing and distribution decisions, inventory costs and cash flows, pricing policy, accounting systems and transactions management.
We expect a flat 1% GST across India to be levied by the government, which would replace most indirect taxes currently in place.

b.    Introduction of Option product for Commodity exchange is must: Those who have the exposure should be given an opportunity. It will be a boon for a bullion trader and jeweler. By using this instrument they can hedge their future position and in a way provide the necessary risk cover. An investor will also highly benefit through this instrument. He/she will get a chance to invest in a larger quantity of metal with a lower investment and reap benefits till the expiry date.

Commodity Transaction Tax (CTT) reduces market participation and lowers liquidity.

c.    Allow Depository schemes for bullion industry corporate: Gold Deposit Schemes are offered by banks in which investors deposit gold for a period of certain 3 years earning a fixed rate of interest.  Currently that has been reduced to 6 months. The depository scheme that the banks and MFs are enjoying should also be allowed to corporate, working for bullion industry. It will help to increase the gold reserves and in turn benefit the customers willing to deposit their idle gold. The government should instead harness the existing reserve of gold in our country rather than turning towards imports and implementing alarming hike on custom duty. Hike in the duty on imports will in no way; curtail the demand, as the precious metal has always been regarded as one of the best investment options for social security.

d.    Introduce schemes to convert unaccounted gold to accounted one: Indian households have nearly 25,000 to 30,000 tonnes of Gold. I expect that this budget would show an effective way to gain revenue by exporting it. I would suggest Government of India to introduce schemes like minimum tax scheme wherein an investor is charged minimum tax to convert his/her unaccounted gold into an accounted one. By this the government treasury will also increase and the idle gold can be put to use. The other scheme can be a VDS scheme (voluntary disclosure scheme) by which the Gold /Silver can be brought to the market.

e.    Extend Gold Loan scheme period and LC Tenure: We expect an increase in Gold loan scheme period to extend from 180 days to 360 days and LC tenure from 90 to 180 days. As of now Gold Loan is allowed up to 180 days which implies, a jeweler has to rollover his/her position twice in a year and that in turns leads to increase in imports. If the loan period is extended to 360 days, one cycle of loan will be reduced. A direct effect will be reduction in imports.

f.    NRI’s to be allowed to bring more Gold in India: Currently NRI’s are allowed 1 Kilo of Gold while arriving in India. Earlier this was 10 Kilos. We feel this cap should be raised back to the earlier levels or even more which would help in import reduction and lower the Forex pressure.

“The primary purpose of this blog by Prithviraj Kothari – MD, RSBL, is to educate the masses of the current happenings in the Bullion world.”

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