How about revisiting the idea of Gold Bank?
A change in approach to gold management can rewrite the India Growth Story to the country’s advantage
 
A brief media report posted by AFP in Monday’s newspaper gives some interesting features of the Turkish initiatives in gold management. It attracted my attention because a few years back, I broached the idea of gold deposits accounts in banks, an apex institution to manage export and import of gold and related issues. At that time, a top executive in Reserve Bank of India (RBI) queried, “Do we have a business model?” and I glossed over my ignorance by talking more about the possible activities that could be assigned to the apex gold institution.
 
Though Turkey’s development indicators are much higher in comparison to India (per capita income $14,812 compared to India’s $3,843, Human Development Index Rank: Turkey 90, India 134, Literacy: 94% against India’s 74%, People below poverty line: Only 17% against India’s 30% and so on), there are some common grounds for considering Turkey’s gold management initiative in the Indian context. Such as:
I. Gold is priced heavily in Turkey, not just for ornamentation or investment by banks but as a secure way for private individuals to hold their savings. 
 
II. Many people in Turkey keep gold as security for a ‘rainy day’ rather than products offered by banks. 
 
III. According to estimates, Turks hold some 3,500 tonnes of gold. Turkey has a population of over eight crore against India’s 125 crore. An old estimate from the World Gold Council puts India’s surface gold stock at 24,000 tonnes. Perhaps, if gold concealed in stock with private individuals or organisations are realistically accounted this estimate may get doubled, making the per capita gold holdings of the two countries comparable.
 
Banking in gold
Kuveyt Turk Bank was the first to open gold accounts to its clients in 2007. The AFP report quotes the marketing manager of the bank sharing his first day experience thus: “We bought one kilo of gold, and the demand on the first day was three kilos. It was a very good decision, so we decided to move ahead.” 
 
In 2015, the bank manages two lakh gold accounts with products allowing sales by cheque, bank transfer or mobile phone. The experiment has been successful with ATMs dispensing gold pieces weighing 1.0 or 1.5 grams and total gold reserves with Turkish banks going up to 250 tonnes now from two tonnes earlier. 
 
Indian context
Gold management in India needs a makeover. Once the government musters the political will to recognise gold as a national resource, the whole scenario of India Growth Story will change for the better. The advantages are:
1) When some banks start opening gold accounts, they will also be able to maintain more liquid assets under Section 24 of the Banking Regulation Act, 1949(the section requires banks to maintain a certain percentage of their liabilities in cash, gold or unencumbered approved securities) in gold.
 
2) Individuals and institutions will be encouraged to keep their gold stock with banks thereby reducing misuse(Now for the rich, gold is a medium to show off their wealth- Not only in the form of jewellery, but by erecting statues and flag masts in solid gold-less said about the malpractices practiced in such transactions, the better!)
 
3) Need to import gold will get considerably be reduced resulting in saving precious foreign exchange.
 
Budget 2015-16 is an appropriate medium for Modi government to think loudly on the above lines.
 
(MG Warrier is former general manager, RBI, Mumbai and author of the 2014 book “Banking, Reforms & Corruption: Development Issues in 21st Century India”.)
Comments
MG Warrier
6 years ago
The media report about government having mobilised 900 kg of gold under gold monetisation scheme, by mid-January 2016 is encouraging. The quick response from GOI and RBI to stakeholders’ sentiments make the chances of survival and success of the three gold schemes under implementation (Sovereign Gold Deposit Scheme, Gold Monetisation Scheme and Gold Coin Scheme) brighter. After decades of hesitant approach to gold management, India is now exhibiting the country’s determination to exploit the past savings idling in the lockers of families, institutions and religious centres, and bring them to the mainstream economy, to which gesture, people are responding positively.
The initiative taken by GOI to exploit the potential of domestic gold stock to country’s advantage, if pursued with will and determination, will have a great impact on the growth story of India. When credibility in the government’s ability to manage country’s resources without leakages is restored, temples and other institutions with whom large stock of the yellow metal lie idle will plough it back to mainstream economy. That is their interest also.
Centre is yet to institutionalise a system to manage country’s gold stock. Let us wait for the Budget 2016-17, for a formal announcement on this. RBI should quickly revisit the 1990’s proposal to establish a Gold Bank which can, as an apex body, coordinate the demand and supply sides of gold management professionally.
M G Warrier, Mumbai
Mahesh S Bhatt
7 years ago
Sir do you think an average Indian is so gullible.

Why forget recent NSEL scam worth Rs 5600 crores Gold went missing from ledger.

Simple every system has lacunae today's banking system is dangerously out of syn.Politicians manipulate.

We have RBI & Rajan's team saving the day by great policies.Otherwise India lead to anarchy in state.

So donot enforce same systemic ideas but let parallel systems prevail for back ups.

Man's Mind gets entrapped in systemic comfort zone & fails himself.So let other ideas remain as they are.

Gold has always been man's friend in crisis be it natural/man-made. Mahesh
SuchindranathAiyerS
7 years ago
This is a very tall order. Can an Indian trust his gold to a body that India's Government can always plunder? See what they did to the temples. The main reason why Gold is a preferred form of investment is because Indians have good reason not to trust Government. Government and Constitution remain unrepentantly totalitarian since 1949 and stand ready to expropriate from Indians all that any Government lout or thug desires from inflation to pay for profligacy and make up for extortion to notifying and denotifying land, to buying ONGC equity with Unit Trust money, to making retrospective laws and sending pillars of such banditry to relax in the Rashtra Potty Bhavan. Temple wealth was accumulated for the benefit of the congregations that accumulated them there. Yet Government has nationalized the wealth and spends temple income on Haj Pilgrimage subsidies.organizes jewellery thefts and has distributed the land and assets of the Veda Pathashalas to Non Hindus such as Dalits, Christians and Moslems:
MG Warrier
Replied to SuchindranathAiyerS comment 7 years ago
Let the debate begin. I have my views especially on the trust issue raised here.Let clarity emerge. Aiyer is not yet clear whether Non Hindus include Hindus.Wewill discuss.
SuchindranathAiyerS
7 years ago
This is a very tall order. Can an Indian trust his gold to a body that India's Government can always plunder? See what they did to the temples. The main reason why Gold is a preferred form of investment is because Indians have good reason not to trust Government. Government and Constitution remain unrepentantly totalitarian since 1949 and stand ready to expropriate from Indians all that any Government lout or thug desires from inflation to pay for profligacy and make up for extortion to notifying and denotifying land, to buying ONGC equity with Unit Trust money, to making retrospective laws and sending pillars of such banditry to relax in the Rashtra Potty Bhavan. Temple wealth was accumulated for the benefit of the congregations that accumulated them there. Yet Government has nationalized the wealth and spends temple income on Haj Pilgrimage subsidies.organizes jewellery thefts and has distributed the land and assets of the Veda Pathashalas to Non Hindus such as Dalits, Christians and Hindus.
Narendra Doshi
7 years ago
Dear Mr.Warrier,
Very impressive & achievable. Hope you from the Baking sector, would have been successful in putting to proper authorities for serious consideration.
MG Warrier
Replied to Narendra Doshi comment 7 years ago
Dear Narendra Doshiji
Thanks. The ideas here are not new. Individually, many are convinced and economists like S S Tarapore have written in the media. More public debate may convince political leadership about the advantages of working on some of the suggestions. My own perception is that present dispensation in Delhi(Central Government) and Mumbai(RBI) are not averse to taking fresh initiatives, if they will be conducive to India’s national interest and economic growth. Hope, this explains the context of this article.
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