Until
1990, the Gold Control Act forbade
the private holding of gold
bars in India. There was physical
investment in smuggled ten tola
bars, but it was limited and
often amounted to keeping a
few bars ready to be made into
jewellery for a family wedding.
Gold investment essentially
was in 22 carat jewellery.
Reserve
Bank of India
Since 1990, investment in small
bars, both imported ten tolas
and locally-made small bars,
which have proliferated from
local refineries, has increased
substantially. GFMS estimate
that investment has exceeded
100 tonnes (3.2 million oz)
in some years, although it is
hard to segregate true investment
from stocks held by the 16,000
or more gold dealers spread
across India. Certainly gold
has been used to conceal wealth,
especially during the mid-1990s,
when the local rupee price increased
steadily.
It
was also augmented in 1998 when over
40 tonnes (1.3 million oz) of gold
from bonds originally issued by the
Reserve Bank of India were restituted
to the public.
In
the cities, however, gold is having
to compete with the stock market,
investment in internet industries,
and a wide range of consumer goods.
In the rural areas 22 carat jewellery
remains the basic investment.
The
Gold Deposit Scheme
The
government announced a new initiative
in its 1999/2000 budget to tap the
hoard of private gold in India by
permitting commercial banks to take
gold deposits of bars, coins or
jewellery against payment of interest.
Interest levels can be set by each
bank, and deposits must be for three
to seven years. Interest and any
capital gains on the gold will be
exempt from tax. The banks can lend
the gold to local fabricators or
sell it in the Indian market or
to local banks. However, the depositor
has to declare the origin of the
gold, so that metal bought illegally
to hide wealth cannot be deposited.
The State Bank of India was the
first to accept deposits. To date,
the amount of gold collected under
this scheme (less than 10 tonnes
or 0.32 million oz) has fallen well
short of the 100 tonnes (3.2 million
oz) that was mentioned when it was
launched.
See
also: India
Markets Introduction; Evolution
of Modern Gold Market in India