Bullion industry proposes own delivery standards
The domestic bullion industry has proposed own good delivery standards and responsible practice norms, instead of the traditional use of London Bullion Market Association (LBMA) standards.
This is seen as a precursor to the setting up of a spot exchange for gold trading.
In India, only the MMTC-Pamp refinery has been recognised by LBMA. The government is discussing the issue with stakeholders, including Indian Bullion Jewellers Association (Ibja), which prepared the draft. The draft has been given to the Union finance ministry on Tuesday. Others involved in the discussion are the World Gold Council (WGC), business chambers, and hallmarking and refinery associations, besides the Indian Gold Policy Centre under the Indian Institute of Management, Ahmedabad. Rajesh Khosla, managing director of MMTC-Pamp, said: “The good delivery draft has been modelled on the international norm for precision and quality set by LBMA, on which there cannot be any compromise. The Indian elements in this deal with finance and production numbers that relate to the Indian environment. The quality standards proposed are (the) global (ones).”
WGC is preparing a feasibility report for a gold spot exchange and this is expected in a month or two. According to the good delivery standard proposed by Ibja, four years of experience in refining of metals, annual refined production of five tonnes and tangible net worth of ~15 crore are proposed for refineries to be eligible for the India Good Delivery. Khosla says some deviations from LBMA norms to suit the Indian environment in the good delivery draft include a onekg bar being permissible instead of the 12.5 kg bar required by LBMA, and a one-year time frame for refineries to get their responsible gold practices checked from approved auditors. Ibja has also proposed specifications for good delivery bars, integrated responsible gold guidance proficiency testing and pro-active monitoring and auditing procedures. There would be procedures for ensuring gold is not imported from conflict zones or areas where gold mining is not legal or the money from mined gold being used for illegal or anti-social activities.
According to Surendra Mehta, secretary of Ibja, “Indian good gold delivery rules and responsible standards are key to establish a spot exchange.” Ibja has put the draft on its website and invited suggestions from stakeholders till August 14. Mehta says these rules are to also apply for silver. Comments on this draft have also been invited from the government, the Reserve Bank, the Securities and Exchange Board of India and the Bureau of Indian Standards.
Apart from what Ibja has proposed and a WGC feasibility report, a proposal is under discussion in the finance ministry regarding goods and services tax (GST) on gold to be traded on the proposed spot exchange. It is being proposed that trading on exchange will not attract GST but deliveries will be subject to it. Vaults storing gold will be recognised by the exchange and delivery centres will also be decided, covering major trading and processing centres. Deliveries will have gold swap options, where if a trader in Chennai sells gold to one in Mumbai, the former's account in Chennai will be debited, while delivery will be made from a vault in Mumbai.