Buying gold on the Akshay Tritiya day is considered as a good omen by Indians. A gold ornament shopping for the marriage of son or daughter is also a common practice among the people. Apart from this, investment in gold is considered as a safest one which will protect one in bad times. It is also believed as God’s money and offered to temples on auspicious occasions. The popular ways of obtaining physical gold are jewellery, coins and bullions. The other ways of gold investment available are Gold Mutual Funds, Sovereign Gold Bonds and Gold ETFs. But this traditional habit may be replaced by digital gold in near future.
Buying gold in physical form is not so an easy task. One has to visit the jewellery shop, must be well-versed with the price, quality and weighing. Moreover, its preservation is risky and an eyesore to outsiders.
On the other hand, digital gold can be bought online by digital payment any time anywhere. The storing responsibility is borne by the seller who preserves it in insured vaults and it can be sold at any time or exchanged for physical jewellery, coins or bullions. The Augment Gold Ltd, the MMTC-PAMP India Pvt Ltd and the Digital Gold India Pvt Ltd are the companies offering digital gold in India.
India is the second largest consumer of gold, next to China with 800 to 900 tonnes of annual demand, and enjoys an important position in the global markets.
But so far as the gold’s price setting or price influencing is concerned, it has no role to play at all. There is every need to create a vibrant gold eco system in the country to commensurate with its large share of consumption so that it can emerge as a global price setter for the yellow metal. Very soon, the country is going to witness the gold exchanges similar to the stock exchanges where stocks are bought and sold in the electronic form.
The Securities and Exchange Board of India (SEBI) is going to be the sole regulator for the gold exchange. Three tranches are to be performed in the exchange: conversion of physical gold to electronic gold receipts, trading of these electronic gold receipts in the exchange and conversion of electronic gold receipts to physical gold.
The whole process will be carried by the vault managers, depositories, stock exchange and clearing corporations. Establishment of the regulated gold exchange will be a landmark in the economic history of the country and Electronic Gold Receipts (EGRs) are going to become popular in the near future. The idea of the gold exchanges cropped up in the 2018-19 Budget with the expression of interest in the area; and in the 2020-21 Budget speech, the Finance Minister notified the SEBI as the regulator. To materialise the proposal, the SEBI constituted two working groups.
The First Group was made with representatives from the Stock Exchanges, Clearing Corporations and the Depositories. They were asked to study the transaction flow from physical gold to electronic receipts and back, role of different entities in the flow and the handling capacity of vaults, clearing and settlement, taxation, etc.
The Second Group was constituted with representatives from India Bullion and Jewellers Association (IBJA), World Gold Council (WGC), Metals and Minerals Trading Corporation (MMTC), Bureau of Indian Standards (BIS), India Gold Policy Centre (IGPC), Warehousing Development and Regulatory Authority (WDRA), Vault Managers, Depositories and HDFC Bank. They were asked to study and suggest means for the sources of gold for trading, financial requirements, safety and security by the vault managers, system for verification of purity of gold, etc. Both the groups submitted their reports in April 2021 paving the way for establishment of gold stock exchanges.
However, the SEBI is seeking comments on three aspects and, accordingly, published a consulting paper on its website for the proposed framework for Gold Exchange in India and Draft SEBI (for Vault Managers) Regulations 2021.
The first point, for which views are sought from the stakeholders, is whether there should be a new exchange or the existing stock exchange be allowed to conduct the business-related to EGR and if the existing one is allowed whether it should be launched in a new segment or a new asset class added? The fixation of the smallest denomination of EGR for trading or for conversion to physical gold like 10 grams or 5 grams or even lower is another criterion for which views are sought by the SEBI.
The regulator asks for views from the stakeholders regarding the proposed feature of the EGR’s feasibility and interoperability between the vault managers which facilitates the conversion of EGRs at place of choice of the buyer.
It is proposed to collect the storage and delivery charges from the beneficial owner of EGI to be deposited with the depository for onward payment to the Vault Manager and SEBI seeking views to find out a better mechanism if the present one is not appropriate. The logistics for the movement of the gold physically is to be borne by the owner of the gold, it is proposed. Views are also sought on what should be the tax structure to make the EGR market liquid.
The regulator has fixed June 18 as the last date to receive views and suggestions from the stakeholders. If everything goes smoothly, the much-awaited gold exchange may become operative within this year and people can buy or sell EGRs with a simple touch of the keypad.
(Dr Biswal is Head, Department of Commerce, Nowrangpur College, Nabarangpur, Odisha, 764063. Mob: 9437125286. bhaskarnathbiswal@gmail.com)
