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Saturday, February 22, 2025, 7:04 pm

Saturday, February 22, 2025, 7:04 pm

Transforming India into a Global Gold Price Setter: Key Policy Reforms

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India has long had a deep-rooted relationship with gold, spanning mythology, history, economics, and culture. Ancient Indian scriptures mention gold as a symbol of prosperity, and its economic significance as a store of value remains undeniable. The ability to liquidate gold quickly for cash makes it an essential financial asset for Indian households. Despite being the world’s second-largest consumer and importer of gold—bringing in around 700-900 tons annually, valued at $35-40 billion—India continues to be a price taker rather than a price setter in the global bullion market. International gold prices are largely determined in financial hubs such as London and New York, leaving India to follow their trends.

The idea of India emerging as a price setter in the bullion market has been widely discussed among policymakers and industry experts. However, despite the appeal of such aspirations, little concrete action has been taken to realize this vision. Simply having high consumption and import volumes is not enough to wield significant influence over global pricing. If India is to play a decisive role in the gold market, it must overcome several structural and policy challenges within its bullion ecosystem. Achieving this goal requires strong political will, coordinated stakeholder efforts, and the implementation of progressive reforms.

Key Challenges Hindering India’s Gold Market Influence

For a country to establish itself as a gold price setter, it must be deeply integrated into the global value chain. This involves unrestricted trade policies, seamless currency transactions, well-regulated and transparent markets, and robust quality assurance mechanisms. India faces several roadblocks that need urgent attention:

1. Establishing a Stable and Predictable Policy Framework

One of the biggest obstacles in India’s gold sector is policy unpredictability. Currently, gold is viewed as a demerit commodity by policymakers, resulting in frequent changes in tariffs, customs duties, and trade policies. This lack of stability creates uncertainty among industry participants, discouraging long-term investment and market development. To establish India as a gold price setter, a stable, transparent, and long-term policy framework is essential.

2. Enhancing Transparency in the Physical Gold Market

The Indian gold market, despite growing formalization, still has a significant unorganized segment. The existence of a thriving grey market leads to price distortions, lack of standardization, and uncertainty regarding purity. Many transactions in this segment involve undisclosed financial dealings, creating loopholes in the system. Addressing this issue requires stricter regulatory enforcement, greater transparency in trading, and robust measures to eliminate grey market practices.

A comprehensive system ensuring end-to-end traceability of gold transactions will enhance confidence, improve pricing mechanisms, and create a more efficient market. This would also protect consumers from under-carating and other fraudulent practices that undermine trust in the system.

3. Strengthening Quality Assurance Mechanisms

The credibility of India’s gold market is often questioned due to inconsistent quality standards. Under-carating remains a widespread issue, affecting both domestic consumers and export credibility. Expanding hallmarking infrastructure, making certification processes more affordable, and enforcing strict consumer protection laws will be vital in establishing India’s reputation as a reliable player in the global bullion market.

4. Improving Market Infrastructure and Data Transparency

While physical infrastructure such as gold vaulting, transportation, and assaying facilities are crucial, equally important is the development of soft infrastructure. This includes better data collection, real-time market information dissemination, and leveraging technology to modernize trade practices. Currently, India’s gold market lacks comprehensive and scientifically captured data, creating opportunities for speculative trading and information asymmetry. Addressing this gap will be key to ensuring fair pricing and greater market confidence.

5. Removing Trade Restrictions and Strengthening Global Integration

Despite being a major importer and exporter of gold jewellery, India is not fully integrated into the global bullion value chain. Trade restrictions, such as the prohibition on exporting gold bars and the requirement for imports to be routed through designated agencies, limit India’s influence in global pricing mechanisms. A more liberalized trade policy that facilitates seamless import and export transactions is essential to increasing India’s global gold market clout.

6. Addressing Currency Convertibility Barriers

India’s limited capital account convertibility acts as a significant barrier to its aspirations of becoming a price setter in the gold market. While remittance policies have become more flexible in recent years, restrictions still exist. To establish a stronger foothold in international markets, greater currency flexibility and liberalized capital movement policies will be necessary.

7. Streamlining Regulatory Oversight

The Indian gold sector is regulated by multiple government agencies, including the Ministry of Finance (for taxation and tariffs), the Ministry of Commerce (for trade policies), the Ministry of Consumer Affairs (for quality control), the Reserve Bank of India (for financial regulations), and SEBI (for derivatives trading). The absence of a unified regulatory approach results in policy fragmentation and inefficiencies. Establishing a single, well-coordinated regulatory body dedicated to overseeing all aspects of the gold market can help create a more cohesive and effective governance structure.

The Road Ahead: A Holistic Approach to Gold Market Reforms

While addressing these challenges is a necessary step toward making India a global gold price setter, it may not be sufficient on its own. Other critical factors, such as international investor confidence, ease of doing business, and long-term policy stability, will also play a crucial role.

To create a truly competitive and influential bullion ecosystem, the Indian government must adopt a comprehensive strategy that aligns policy reforms with industry needs. This includes:

  • Implementing a long-term, stable policy environment for gold trade.
  • Strengthening transparency and traceability to eliminate the grey market.
  • Expanding quality assurance mechanisms, including hallmarking and certification.
  • Enhancing both physical and digital infrastructure for data-driven decision-making.
  • Liberalizing trade policies to allow full participation in the global gold value chain.
  • Removing restrictions on currency convertibility to facilitate seamless international transactions.
  • Establishing a unified regulatory authority for better oversight and governance.

By addressing these structural and policy-related hurdles, India can position itself as a credible and influential player in the global bullion market. The journey from being a price taker to a price setter will require sustained efforts, but with the right reforms, India has the potential to shape the future of gold pricing on the world stage.


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