India needs Hindustan Zaveri Bank, a wholly-owned Bank by the Government of India to handle all the required transactions in the bullion trade, which is gold, silver, platinum and precious metals.
Indians have been acquiring gold for ages. India produced what is best possible and the people always enjoyed the surpluses and the form of savings was gold.
As far as the 1930s, gold and silver were traded freely in India without any taxes because it was held as a form of currency. It was natural that whenever there was distress and crisis, individuals or institutions who held gold used to sell it and meet their requirements. Wealthy always had the preference to have gold and silver as their reserves. The introduction of currency has not reduced this intensity. The Reserve Bank of India is the only entity that holds gold in India and abroad.
It should work with the Central Government to establish the Hindustan Zaveri Bank with a capitalisation of whatever gold that is held in reserves by an arrangement, which will make the establishment of the Hindustan Zaveri Bank. This was proposed by Professor B R Shenoy.
The duty on gold was recently reduced in the central budget. Gold is such a freely moving precious metal that if there is a slight difference from one geography to another, one place to another, one nation to another, there would be a movement.
Gold is held by central banks all over the world. The presence of gold as collateral will always mean that the bank will have the ability to have current account deposits as a matter of trust and reliability. This means that the Hindustan Zaveri Bank will be able to have current accounts and savings bank accounts at zero cost from global currencies. This will also mean that India will be emerging as the bankers to the world.
Trust and reliability constitute the core of banking. Banking is not necessary just for individuals but for institutions around the world and they will have the highest level of trust when there are gold reserves.
In India, individuals hold gold to such an enormous extent. The buying of gold in India is absorbing the surpluses of gold in the world. This can be channelled through the Hindustan Zaveri Bank as the controller and regulator for all gold activities in India by legislation and by conduct. Recycling gold is very important in the Indian context as individuals sell their gold at times of necessity. Gold related activities have reached new heights. Lending against gold is at the lowest cost and banks are actively promoting gold loans because it is the safest form of lending.
India has very few gold mines; the one which was famous, the Kolar Gold Fields has been redundant and another small mine in Karnataka called Hutti Gold Mines also has lower yields. Gold depositories in India can improve employment and a movement of gold will involve more focus on the necessity of efficient logistics for precious metals.
Depositories managed by the Hindustan Zaveri Bank can act as custodians for Indian and global gold. Regularising gold holdings will mean a lot of projection of substance and wealth.
India is borrowing externally at high costs. This is because of certain weaknesses in the system, not necessarily of one institution or the government.
The Government of India’s borrowings have reached a peak of over 90,00,000 crores along with the State government’s and the interest payout is almost 10,00,000 crores a year. The Central Government can borrow even in rupee terms with a structured arrangement with the Reserve Bank that will tide over the overwhelming expenditure of the Government of India, which is currently in the range of 6,50,000 crores.
This is a legacy of inflation management of 10 years when enormous amounts were borrowed for the sake of expenditure and this can be pared down.
The Government of India should be able to borrow at less than 2% per annum for at least half of its outstanding debt if it begins to make a structural arrangement. In the initial steps towards this, the Reserve Bank of India can entrust the gold to one nationalised bank and Exim Bank of India for two purposes:
1) To make available gold at international prices to all entities who are engaged in the fabrication of ornaments for export
2) It can act as a conduit for international trade by inviting gold as depositories and based on the daily transactions, make available gold at all designated branches officially.
It is required to structure this in order to prevent gold smuggling, which is still present. Gold smuggling has got its collateral damage as a parallel economy is in circulation. Eliminating that parallel economy means that a minimal margin is charged at all levels on the basic transactions of gold.
The gold economy can expand for India and abroad once it comes under thorough regulation.
In this case, a strong government presence is a necessity. Eventually, people of integrity and networking will enable higher performance in the gold-related sectors and associated with precious metals like platinum, silver and similar materials. This can extend to diamonds also, where India has a very strong world presence. But the institutional support that is required needs resources, which can be channelled to make India the centre of precious things in the world.
