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All India Gems & Jewellery Trade Federation views & suggestions on "Draft Gold Monetization Scheme” announced by the Government of India - Suggestion to appoint one apex industry body having National presence to coordinate on the industry’s behalf.

All India Gems & Jewellery Trade Federation views & suggestions on Draft Gold Monetization Scheme” announced by the Government of India - Suggestion to appoint one apex industry body having National presence to coordinate on the industry’s behalf. - Dated:- 26-6-2015 - 1.0 Background The Gold Monetization Scheme (GMS or Scheme) is a welcome step initiated by the Government of India to unlock the unused and idle gold lying in households and institutions and bring them into mainstream and release .....

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ributors, laboratories, gemologists, designers and allied services in the domestic Jewellery industry. GJF has been instrumental in organizing the Gems and Jewellery domestic trade in a more structured manner and bringing about awareness among its members / players about the need to follow a more transparent, ethical and professional policies and procedures in its dealings with its customers and other stake holders in the industry. 3.0 Views & Suggestions of GJF The entire draft of the GMS s .....

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heme (Serial no. 1), while there is a mention about mobilize the gold held by households and institutions in the country , the real impact and benefit of this measure in terms of providing a major boost to the Indian economy by release of the idle funds locked in these gold assets and its Gross Domestic Product (GDP) multiplier effect has not been highlighted. This is a very significant point given that even if we consider an annual release of 200/250 tons annually ie. 1% of Gold under this Sche .....

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ging down gold imports significantly over a period of time, which will also provide a major relief to the Current Account Deficit being faced in the balance of payments in foreign exchange by the Country. India holds an estimated 24000 tons or whereabouts of Gold, of which atleast 25 % to 35 % is estimated to be lying idle, held privately as well as through religious trusts etc. Almost 30 % of this gold i.e. 7200 tons is estimated to be lying as investment gold. With an attractive scheme and wit .....

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n economy. The present draft of the Scheme does not bring out this objective and intent clearly and forcefully and as such unless this is redrafted and re-positioned in a proper manner, the Scheme s objectives and ultimately the Scheme itself may get diluted. 3.2 In the Scheme document published, Serial No. II is missing (after Serial no. I, the Scheme directly moves to Serial No. III). It is not known whether some matter has been missed out in the document published or this is a mere typo error .....

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the infrastructure to connect and interact with the people at large and facilitate the collection and transacting of the gold across the country under this Scheme. This aspect of the crucial infrastructure requirement seems to have been totally left to the banks which are going to open the Gold Savings Account . The banks are ill equipped to handle enquiries and processing of public enquiries, let alone market and promote the scheme. The business of banks is collecting of deposits and lending of .....

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iaries who can help connect this Scheme with their millions of customers across the country. Further, the Jewellers also have full knowledge of Jewellery buying trends of their customers (both past and present) from their database and hence are well equipped to act as effective enablers to market and promote this scheme by targeting focused persons / organizations from their client database. This one aspect alone can make the entire scheme a great success. 3.4 Gold Collection Centres (to be incl .....

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ying institution as they are not known to the customer and not situated in a place of customer convenience. It is here that the Jeweller emerges as the single choice as a Collection Agent for the Scheme given the high regard and trust which the Customers place on him due to the relationship over several years / decades in many cases. Jewellery outlets are generally positioned at most convenient market locations and customers generally feel at home in such an environment to discuss matters on th .....

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ereby generating higher gold accumulation for deposit. This makes the Jeweller the most ideal participant to be able to market and promote the Scheme and its benefits to customers / public at large and motivate more and more persons to come and join the Scheme. Further, should the operations require, most of the large and medium sized jewelers are fairly equipped to conduct all initial melting, XRF, to derive the fundamental content of pure gold meant for deposits at his own outlet and give th .....

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rformance. Further, the entire process can be made well-structured and transparent through a well drafted process of manual and audit systems. While on this subject, GJF would like to submit that based on its analysis, some of the key reasons for the failure of the Gold Deposit Scheme (1999) were - The scheme was never marketed efficiently across the country. Individuals failed to be targeted while the focus was on Temples and Institutions. Minimum limits on deposits were on higher side. In .....

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rame required for a bank to conclude a deposit will be 2 - 3 days. Most banks do not have the penetration required for this scheme The Scheme was devoid of any exemptions to depositors who were scared of coming under the radar of the Government s Tax network. As such GJF once again suggests that the Collection Centre network must be very widely based with people understanding the intricacy of gold and marketing and Jewellers made an integral part of the Scheme, with only banks and refining cen .....

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- This is a technical test that can be conducted by Purity Testing Centers. There are very few Hallmarking centers who have the capabilities of refining. Deposit of Gold - It is of key significance that the Scheme will only work efficiently when the gold received for deposit can be assessed, tested and a confirmation given by the Collection Center of the pure gold to be deposited. If the depositor receives promptness and convenience a very positive word will spread around. Conditions - There .....

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, as it enables a Customer to hold all his securities in a single account which significantly reduces the challenges in tracking balances, KYC, nomination of beneficiaries etc. The Demat accounts are being maintained by various Depositary participants, which are highly regulated. As in case of bonds, the gold savings held in Demat should be allowed to be traded in the stock / commodity exchanges (as per guidelines to be framed by SEBI with proper KYC checks and balances). This will bring in th .....

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omer gets a tax free interest ranging between 2 % to 3 % per annum this may be good enough to attract the customer to bring in greater quantity of gold. May be the interest rates for shorter tenure (say, one year) could be 1.5 % and for longer tenures could be on an increasing scale ranging up to (say) 3 % for a 10 year period. Temples and Institutions may be offered a low rate of interest but privately held gold will only see light of day with a good interest proposition. This will motivate .....

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heme only provides for tenure of one year with roll overs in multiples of one year. Given that Gold accumulation is being done by individuals / institutions with a long term perspective, there should also be an option given to the customer to select longer period option (say) 3, 5 or even 10 year time frame. In such a situation the Bank can also be provided with a put option to repay the deposit at the end of specified intermediary periods in the event it feels that its business risk has become .....

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e, some received as Streedhan, gifts on marriages and other social functions etc. As such in many cases, the depositor may face a challenge in presenting the related documentation (if asked under the Scheme). Due to this challenge, there is a lot of doubt in the public mind on whether to participate in this Scheme or not due to fear of being questioned. GJF humbly submits that if the Government clarifies that the deposits by individuals up to a certain quantum (say, 500 gm per person considering .....

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r pay premium for a life insurance policy up to a threshold limit without being insisted upon to provide a PAN no and other KYC documents. It does not mean that all persons presently making cash payments are immune to the regulatory liability. They still have to explain the source of their investments if asked during assessment proceedings. In the case of gold and jewellery, as the same is handed over through generations by parents or grandparents to their children, in nearly most cases, there i .....

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mobilized under the scheme as under: Gold loans to domestic jewellery industry Gold loans to jewellery exporters Outright sale of gold domestically Sale of gold to other nominated banks. For the services provided by the Jewellers / Assayers / Refiners, they will have a set fee structure as per industry standards. The fees could be either absorbed by the Jeweller from his fees or charged independently or paid by Bank. GJF recommends that the Jeweller should charge the depositor, 0.05 % of th .....

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n the view of GJF, the Banks should lend to the Gems and Jewellery industry at around 4 % to 5 % per annum. From the current level, there may be a 1 % to 1.5 % increase in the lending rates of gold to industry, but for achieving a bigger objective of controlling imports and to unlock idle gold for economic development, GJF feels this would be fine with the industry. With more and more mobilization of gold, once a minimum target of gold deposits are achieved, Banks could be compelled to use this .....

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me will not be a success due to the inherent gaps in the scheme s structure as detailed above. GJF based on the interactions with its Members across India comprising of several very large multi showroom, large, medium and small jewelers is confident that with the active involvement of the Jewellery trade in this Scheme, and good support from the Government, the Jeweller community can easily help in mobilization of over 200+ tons in the very first year (after an initial preparatory period of 3 m .....

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. However, unlike India, Turkey has a small but growing gold mining industry. Turkey's policy makers realized the important contribution gold makes to the economy. In 2013, jewellery exports, most of which was gold, was $3.3 billion. Price Waterhouse Coopers estimated that bar, coin and jewellery consumption and fabrication in terms of gross value addition contributed nearly $3 billion to the Turkish economy. In addition, gold recycling would have added $1 billion. The gold industry is estim .....

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y's policy makers designed an innovative policy called the Reserve Option Mechanism (ROM), which allows commercial banks to maintain part of their statutory reserves requirement in gold or foreign currency. Theoretically, it is possible to demonstrate that this policy instrument (ROM) will (i) reduce volatility in exchange rate, (ii) reduce the impact of foreign currency inflows on the financial sector, and (iii) reduce the cost of domestic currency liquidity requirement of the banks as they .....

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cial banks, the Central Bank, and the Government. Studies have shown that the individual is prepared to participate in a gold deposit scheme provided the interest earned is at least 2-3 per cent, the period of deposit (compulsory) is about 3-4 years and the minimum quantity is not very large. In addition, an extremely important requirement is purity verification by an internationally accredited laboratory to be done in the individual's presence. Naturally, ease of paperwork, easy withdrawal, .....

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financial sector and increased stability of the exchange rate. The Government's interest would be served by way of a reduced CAD and putting gold to productive use. The success of the ROM was underpinned by the development of necessary infrastructure, which is a precondition for the success of any Gold Monetisation Scheme. Turkey allowed banks to buy and sell gold coins and encouraged banks to introduce a variety of gold-structured products like gold current accounts, gold accumulation plans .....

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