Pre­cious metal own­ers dis­cour­aged by high pro­cess­ing costs, lit­tle profit

New Straits Times - - Business -

IN­DIA’S am­bi­tious plan to re­cy­cle thou­sands of tonnes of gold ly­ing idle in tem­ples and house­holds looks to have foundered on con­cerns over high costs and slight re­turns, in a blow to gov­ern­ment hopes of cut­ting im­ports of the metal.

After 16 months, tem­ples and house­holds had turned over just seven tonnes of gold out of the 24,000 tonnes be­lieved to be in pri­vate hands, said two in­dus­try sources and a gov­ern­ment of­fi­cial, with al­most all the gold com­ing from tem­ples.

Fam­i­lies that hold about 80 per cent of the idle gold had largely shunned the scheme, with some four dozen gov­ern­ment-ap­proved cen­tres that opened to test pu­rity still yet to process a sin­gle gramme of house­hold gold, said Har­shad Ajmera, pres­i­dent of the In­dian As­so­ci­a­tion of Hall­mark­ing Cen­tres.

“You hardly earn any­thing but you have to do so many things to de­posit gold un­der the scheme. Why should I take all this pain?” said 54-year-old clerk Gan­pat Shelke, who con­sid­ered de­posit­ing 50g of gold.

The strug­gling scheme was launched with much fan­fare by Prime Min­is­ter Naren­dra Modi in Novem­ber 2015, with In­dia seek­ing ways to stem the spend­ing of bil­lions of dol­lars on a non-es­sen­tial com­mod­ity that ac­counted for 27 per cent of its trade deficit in the year to March last year.

The coun­try is the world’s sec­ond-big­gest gold im­porter be­hind China, buy­ing about 800 tonnes a year for wed­ding gifts, re­li­gious do­na­tions and as an in­vest­ment.

The plan was for hold­ers of idle gold to lodge it with banks in re­turn for in­ter­est and cash at re­demp­tion. The gov­ern­ment would melt the gold and auc­tion or rent it to jew­ellers, re­duc­ing the need for im­ports.

But the scheme lo­gis­tics mean the own­ers of the gold must shoul­der the cost of test­ing its pu­rity and melt­ing it down, while the in­ter­est rate on of­fer of just 2.5 per cent, com­pares with seven to eight per cent that banks of­fer for cash de­posit rates.

“If a con­sumer wants to have 25g jew­ellery con­verted the cost of con­vert­ing and pu­rity test­ing takes three to four per cent of to­tal value away,” said Shekhar Bhan­dari, ex­ec­u­tive vice-pres­i­dent of Ko­tak Mahin­dra Bank.

Even when hold­ers of the pre­cious metal want to take part in the scheme they have run into hur­dles.

“I vis­ited four banks sev­eral times to de­posit gold but they could not ac­cept it,” said Kushal Chat­ter­jee, a busi­ness­men from the eastern city of Kolkata. “They said they did not know the process.”

A se­nior of­fi­cial with the In­dian Banks’ As­so­ci­a­tion said the cur­rent scheme of­fered banks lit­tle or no profit.

“There should be an in­cen­tive for banks,” said the of­fi­cial.

Banks are also con­cerned that pro­vi­sions al­low­ing gold to be de­posited for up to 15 years will raise cur­rency and liq­uid­ity risks, the In­dia Gold Pol­icy Cen­tre in a re­cent re­port.


In­dia is the world’s sec­ond-big­gest gold im­porter be­hind China, buy­ing about 800 tonnes a year for wed­ding gifts, re­li­gious do­na­tions and as an in­vest­ment.

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