India urged to free gold trade
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India urged to free gold trade

Friday, 31 January 2003, 08:00 Hrs
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NEW DELHI: India should totally free gold trade of all controls to enable consumers and investors to export the yellow metal and take advantage of price movements, bullion experts said here Thursday.

"In India it is no exaggeration to say that a whole generation of dealers has been effectively prevented from engaging in trading practices which in most other markets are regarded as not just normal but essential to the efficient running of a commodities trading business," said Simon Weeks, chairman of the London Bullion Market Association (LBMA).

Weeks, also director of Scotia Mocatta, was addressing a two-day meet of LBMA here.

Despite being the biggest importer and consumer of gold, estimated at peak to be about 800 tonnes, including recycled products, India does not permit export of the yellow metal without value addition.

Since the abandonment of gold control in 1990, the Indian market has seen a lot of deregulation. But, according to the experts, there has been less enthusiasm in recent years about total lifting of curbs.

"It is unfortunate that Indian bullion trade has missed out on the developments of the last two decades -- from the introduction of options in the early 1980s to products such as Forward Rate Agreements and Interest Rate Swaps which have more recently begun to have impact on the wholesale market in London," said Weeks.

Attended by around 200 bullion market experts, the two-day meet of LBMA has been organised to chalk the way forward for the Indian market and take steps to set up a bullion futures exchange.

Unlike in London, which has no bullion futures exchange but has an active forward market, "there are credit constraints in India that would make a fully margined futures exchange a more viable option", said Peter Fava, deputy managing director in-charge of precious metals at the London branch of HSBC Bank USA.

With the existing exchanges mostly open outside the Indian time zone, Fava said a local alternative would be preferable.

The London bullion market buys gold from mines and converts it into 10 tola (116 grams) bars after refining for supply to India, the United Arab Emirates and the Far East.

Leading economist S.S. Tarapore said forward trading and a futures market would not alter the demand for gold in the country.

"It would instead provide an element of certainty to the user of gold, and such freeing up of the market is essential for an orderly and well functioning market," said Tarapore.

He emphasised the need for a gold bank to undertake tasks like trading of the metal.

He said a gold bank should be permitted to operate in international markets with no restrictions on holding gold abroad, buying and selling in spot, forward and future markets, leasing and deposit/lending activity not allowed to the Reserve Bank of India (RBI).

Tarapore strongly advocated setting up a regulated bullion exchange "which should be open to banks and other organisations dealing in gold".

This would allow consumers to invest in "paper gold" - an instrument for free trade in gold in place of physical product that restricts and leads to loss in transactions.

It is estimated that final consumers of gold lose an average 80 billion per annum due to the questionable quality of jewellery sold to them over the counter, the experts said.

To check this, Tarapore supported setting up a gold regulatory authority to lay guidelines, with trade bodies putting in place a self-regulatory mechanism.
Source: IANS
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