'Jewellers, women investors key to promote gold schemes'

Interview by Deepak Kumar | The Dollar Business

The prime objective of the government to reduce the reliance on import of gold will be defeated as demand for gold may increase, says All India Gems and Jewellery Trade Federation

  The Dollar Business (TDB): What are your suggestions to make the gold monetization scheme more successful? Bamalwa: In the Gold Monetization Scheme, the government has now included jewellers as collecting agents. But the incentives for jewellers are yet to be announced. If an exemption is provided for a woman up to 500 gms in terms of income tax etc. then the scheme will fly like a rocket. This 500 gms is called “Stree Dhan” in India and has been exempted in wealth tax too.  TDB: What are the drawbacks in the new gold bond scheme? Do you think the 2.75% interest rate is enough to attract investors? Bamalwa: The Sovereign Gold Bond scheme cannot be successful. The interest offered is too low. Further there is a risk of reduction in import duty which is at an all-time high at 10%. Also gold is giving a negative return since last two years and the increase of interest rate in USA is on the cards which may pull the prices of gold down.

] Bachhraj Bamalwa, Director, All India Gems and Jewellery Trade Federation

TDB: How do you see the prospect of new gold coins launched by the government? Do you think it will encourage investors?  Bamalwa: The Ashok Chakra gold coin is an instant hit with the government. But restricting the sale through MMTC outlets is one of the negative aspects. Also, being sold at a premium of 8-10% over raw gold price, it is alright for one-time collection, but it will be a bad investment. The prime objective of the government to reduce the reliance on import of gold will be defeated as demand for gold may increase. Besides, it will nullify the benefit, if any of the two investment scheme. TDB: What are the major reasons that make investors cautious? Bamalwa: It would have been better if import duty on gold was reduced before the launch of Sovereign Gold Bond Scheme so that the investors can calculate their return on their investment. High import duty on gold is not good for the overall economy of the country as imports through illegal channels are encouraged. TDB: How can the benefits of these schemes reach the rural masses? Is there an outlined strategy to advertise the benefits in rural areas?  Bamalwa: There is no need to advertise the Gold Monetization Scheme. If a small incentive is provided to jewellers then jewellers themselves will market the product and I am sure the scheme will succeed. TDB: What challenges will it pose to traditional gold investments option? Bamalwa: If the schemes are properly executed, it will reduce the traditional gold investment by 40-60%. TDB: Had a higher interest rate, similar to savings bank rate, been a much better option for the investors? Should the investment limit have been more than 500 grams? Bamalwa: Yes, the interest rate should be higher. The investment limit is alright otherwise it will be misused. TDB: The price of gold is fixed at 2,684 per gram for bonds. How would this affect investors when prices of gold go up/down? Also, do you think the exit option could be a deadlock? Bamalwa: A wise investor will not subscribe the gold bond at this price. Yes, three-five year tenure would have been ideal and exit options should have been at one year.  

November 23, 2015 | 1:24pm IST.