Team Khatarnak

IIM Shillong
These are the steps in which our presentation would progress



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Industry Outlook
Plan 1 Plan 2
Central
Governing
Body
Incentivizing
Value Chain
Role of
regulators
Recommendations
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Despite increase in import duties and gold prices, hunger for
consumption of gold in India is still unsatisfied
Current Scenario
Huge mismatch between in-house production
capacity and demand for gold in India
No gold refinery has been able to reproduce gold
matching international quality standards
Gold has become major contributor to CAD, thus
government has imposed import restrictions which
has led to smuggling of the metal in India
Non effective implementation of systems to bring
back gold from the Indian consumer back in money
supply through Gold deposits schemes etc
Bullion market in India is largely unorganized, and
there is a lack of standardization for quality
measurement across the country
Lack of incentives for private sector to invest in R&D
for setting up high quality gold recycling refineries
Non existence of one central supervision governing
trade in gold for investment or consumption
purposes in India
Existing schemes are not being widely advertised to
ensure investment in gold eg.SBI gold deposit scheme
Trends in gold prices and the
volume of imports to India
Investment demand for gold in
India (tonnes) 2011-13
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Source: RBI, Centre for comparative studies report
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Setting up effective incentive schemes to exchange old gold jewellery for new
jewellery by establishing a reverse supply chain and addressing trust issues
would help the Indian economy to escape from huge gold imports




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Ideation : Government must establish non-profit self-sustaining institutions that
would exchange old jewellery held by consumers for new & modern design jewellery
on a marginal profit basis to transfer maximum benefits of exchange to consumers.
The jewellery exchanged would be guaranteed by government of its purity to address
trust issues of consumers in exchange process. Such a process would directly bring
exchange process of gold directly under government control and supervision.
Key pointers regarding the idea:
The old jewellery accepted from consumers would be thoroughly checked for purity before the exchange process
Marginal profit on operations would ensure maximum consumers come to these governmental institutions for exchange process
thus eliminating local chains from the reverse supply chain
The old jewellery collected through this system would then be given to gold starved refineries to recycle gold and create gold
coins and gold bars of international standards, investment on R&D by government in these refineries is mandatory to make them
world class and getting accreditation by London bullion market association beforehand
Local and widely distributed shops of these NPOs would be established or certificates can be issued to local vendors to aid the
NPO in old jewellery collection process thus creating a reverse supply chain for existing gold in the hands of Indian consumers
The gold coins & bars produced by refineries would then be used to issue Gold ETF to increase money supply in the economy
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Simple exchange process would motivate higher exchange of old gold
jewellery and thus help India in solving problems related to CAD, Interest
Rate, Currency exchange rates issues etc
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Government of
India
Old Jewellery
Cash (if reqd)
New Jewellery
New Jewellery Gold Coins & Bars
Melting
process in
LBMA
accredited
refineries
Banks &
Financial
institutions
Underlying
security
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A system wherein existing retailers play a significant role may be
incorporated to ensure effective utilization of existing knowledge and overall
improvement in the system of gold transactions



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Challenges to be faced Ways to tackle these challenges
Lack of hallmarking in jewellery as the BIS
mark came into existence only in 1995, the
jewelry purchased before this time has not
been standardized
The underground market where low quality
gold is sold at the price of higher carats
The customers hesitate to exchange their gold
for matters of trust, and due to social stigma
attached towards gold
Creation of LBMA accredited gold refineries to
recycle gold jewellery to create gold bars and
coins of international standards
Readying an efficient investment market
system to invest in Gold ETFs created in the
process


The government must introduce more hallmark standards: Different standards
for different carats can be established like 14, 18 or 22 Carat gold, also when
exchanging older gold jewellery without any certification, an internal quality
check process can be developed to ensure quality of gold exchanged
The government can issue certification to retailers and chains after checking
their methods and processes to determine gold quality before exchange
process, this would enhance trust of the customers
The underground market has to be rounded up. Stricture hallmarking
guidelines and licensing and certifications would slowly improve the scenario
How to get the gold : (As retailers)
Ensure that you deal in hallmarked jewellery
Offer discount on exchange of hallmarked jewellery
Offer 100% returns on exchange of jewellery that has been purchased from your store
Avail of government certifications and licenses to enhance your credibility
Offer "happy days" on which there are 0% making charges

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The solution to the underlying problem is to encourage consumers to sell/
exchange or deposit their gold with governmental institutions in order to make it a
part of total money supply and correcting macro economic problems




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Liberalizing nationalized banks (initial phase) to offer attractive Gold Deposit Schemes
Allowing banks to accept gold as deposits
Consumers for whom gold lies as a non-productive asset that only give them capital gains, would now
be a source of investment that would provide fixed returns along with capital gains
The interest rate that can be offered on these schemes may be close to 10% (We can note that CAGR in
the growth in Gold price since 1990 is around 10%). These schemes would be widely advertised similar
to how Gold loans were advertised on the National TV unlike SBI gold deposit schemes not known by
Indian consumers because of its failure in advertisement and communication
Allow banks to lend to jewelers keeping gold as an underlying mortgage security
Attractive schemes related to pension, insurance, fixed return, investment securities can also be sold to
consumers in possession of gold by accepting gold as a source of investment for sharing the desired
benefits with them
Gold-linked accounts wherein customers invest in gold-backed financial instruments and the bank buys
equivalent gold in international exchanges. On redemption, the customer receives marked to market
value of gold, while the bank sells off the gold held in international exchanges, thereby limiting the
need for domestic circulation of gold
Gold Pension
Accounts
Gold Linked
Accounts
Gold
Accumulation
Accounts
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Creation of a central supervising authority directly evaluating the process
which governs entire system would enable smoother functioning
Central Body
Hallmarking
Bullion Association
(Different States)
All other
government
agencies dealing
with gold
Bank activities
related to Gold
deposits
Authority to
monitor Gold ETF
transactions
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Creation of incentive schemes in value chain of gold transaction would help in
improvement of overall system and lead to an effective trading system
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Procurement Design Manufacturing Distribution & retail Customer
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Consumption
demand
Jewellery
Investment
demand
Jewellery
Bars & coins
o Redirect existing mode of investment to other modes such as
gold ETF, e-gold
o Liberalize regulations affecting the consumption value chain
o Develop and regulate the investment value chain
o Offer uncomplicated financing options
o Develop infrastructure and skills to cater to specific needs
o Reuse and recycling of precious and semi-precious metals from
obsolete gadgets

Suggestions.
Government and other central regulators would play a very important role by
ensuring effective implementation of suggested policies and regulating
existing and new systems dealing with gold
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Government need to ensure development of required infrastructure and human skills to support
suggested changes which can be done through incentives, subsidies, land allocation and utilities
Creation of a transparent and efficient system in gold exchange institutions and vendor certification
Rather then creating import restrictions, government can focus on gold recycling and investing in
refinery development
Role of Government
Role of Other Regulators
Liberalizing banks and other financial institutions to take loan deposits in long run
Supervising the entire functioning of commodity exchanges to ensure ethical transactions related to
Gold ETF created in the suggested process
Simplifying procedures of investment in gold related investments and development of more number
of investment schemes to ensure no physical possession in gold thus avoiding gold imports
Allowing bank to give loans to jewelers on exchange of gold jewellery
Creating a system to allow banks to take gold deposits and using a part of that deposit (upto 30%) as
CRR which would then go on countrys balance sheet, hence strengthening our currency
Developing supply infrastructure for gold related schemes by making them available through better
access to banks, including the use of platforms such as mobile banking
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Efficient implementation and regular supervision of suggested systems would
ensure that India would be able to solve its gold related problems
All aspects of the legal framework and infrastructural framework pertaining to market should be
made before establishing an organised market. In particular, the tax issues of the sector (including
jewellers) must be considered an integral part of the liberalisation process
A precious metals exchange (disregarding MCX, NSEL, NCDEX but a particular exchange meant for
metals) should be established with the purpose of providing liberalised market conditions. This
will certainly decrease the cost of world gold prices for the sectors global competitiveness. For
turkey, the value added as a result of liberalisation was almost US$ 35 million, based on an annual
import average of 100 tonnes. With the establishment of the Istanbul Gold Exchange,
US$1,800,000 value added was provided yearly to the economy. To sum up, over a period of
seven years, liberalisation and the IGE have contributed at least an added value of US$
264,000,000 to the Turkish economy
Such exchange must be made a public company for a more professional approach towards
solution of existing problems related to trading of gold and development of new investment
schemes including gold options and other derivative instruments to promote liquidity in the
market
Government should increase their efforts in implementing laws centred on controlling and
curbing smuggling practices
A central supervising body must be established to govern functioning of different regulatory
bodies and government bodies to implement suggested changes initially and monitoring the
functioning of the new system in the long run
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Team members and their profiles
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Name: Gaurav Bhardwaj
Year: 1
st
Year
College: IIM Shillong
Specialisation: Finance
Name: Rishabh Singh
Year: 1
st
Year
College: IIM Shillong
Specialisation: Finance
Name: Varsha Poddar
Year: 1
st
Year
College: IIM Shillong
Specialisation: Marketing
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