Mumbai: Indian gold traders are aiming to establish a domestic benchmark price for the yellow metal, although differing regional tax rules could hamper the push for uniform pricing, market players said.
India, the world’s largest importer of gold, consumes about 25% of global mined output each year. However, it has no national-level physical market, and so local prices are determined by overseas prices, making it difficult for traders to manage currency risk.
The Indian Bullion Market Association (IBMA) has mobilised about 10,000 jewellers and traders, through 40 of India’s largest bullion associations, to set up a platform that will determine an Indian benchmark price for gold.
“Currently, we have started spot deliverable contracts in six locations and we plan to expand it to 25-30 locations in six to nine months,” said Anjani Sinha, MD and CEO of National Spot Exchange Ltd (NSEL), which holds a 51% stake in IBMA.
Sinha said the spot gold contracts will range from 8 grams to 1 kg. The bourse would aim to fix the gold price twice daily, which would be used by jewellers all across the country.
NSEL is promoted by Financial Technologies, which is the largest stakeholder in the Multi Commodity Exchange (MCX), India’s biggest commodity bourse.
MCX’s gold and gold mini were world’s third- and fourth most-traded gold futures in 2008, Futures Industry Association figures showed.
IBMA also plans to approve gold refiners and create standardized bars for deliverable electronic spot trading in association with the NSEL.
The London Bullion Market Association, the world’s biggest association for the commodity, follows a similar procedure.
“We are ensuring standardised bars for trade... and have already approved two refiners in Ahmedabad and Mumbai,” Sinha said.
Currently, prices in different spot markets across India vary by as much as 1 pct depending upon location and local taxes.
“The absence of a uniform tax structure may be a challenge to have a benchmark pricing,” said Harish Galipelli, head of research, Karvy Comtrade in Hyderabad.
Industry players said India’s policy of not allowing gold exports as a commodity would also hamper its aim to become a global price setter. India allows gold exports in the form of value-added products.
“If they are successful in achieving the desired objectives and if standardisation takes place, it would create confidence among the market participants,” said Nayan Pansare, a Mumbai-based industry analyst.