Over the past decade, investors have been backing physical gold as a wise investment to a client’s portfolio. Now there seems to be an unnerving rumble, worldwide, that India is changing its rules and regulations on the import of this precious metal.
The domestic gold market of India and world investors are quite nervous since rumours spread that there would be a ban on gold. Although it appears the rumours are not true, the clampdown by the government on the black market will take a large toll on gold. It seems the rumors started going wild after Prime Minister Narendra Modi said the government would no longer use 500 and 1,000 rupee notes.
Government officials have tried to put out the fires surrounding the rumors of a gold import ban. The Commerce and Industry Minister Nirmala Sitharaman gave an interview to the Economic Times stating that she is in favor of “restriction free” gold imports to help curtail smuggling. According to some gold analysts, should the government place a ban, it could lead to a dominoes effect on the market.
The truth of the matter, the government attempted to restrict gold imports by imposing a rule which states 20% of all imports must be exported before companies can buy more gold. Many believe that any form of banned gold would work against the government’s efforts to stop smuggling operations.
Although there probably won’t be a ban, other government policies are in place that could reduce India’s black market. Jewellers now have to keep a daily account of all their gold inventories.
The government is also considering banning cash transactions that are more than 300,000 rupees. This could lead to a serious impact on the purchasing of gold jewelry and many other transactions.
At the beginning of this year, Prime Minister Narendra Modi had placed a 1% tax on all cash purchases over 200,000 rupees. That’s almost 80% to 90% of all gold purchased with cash. If Modi’s efforts to curb black money, the demand for gold could significantly drop. Investors’ interest in gold as a solid investment has already started to decline.
While there are still many against the government’s latest actions, there is an ever-growing number of supporters throughout the country. Supporters realize that India must have a strong financial system in order to grow and be a significant player in the global economy.
Authorities have stated that most people do not realize how massive India’s underground economy really is. Supporters believe the Prime Minister’s policies are long overdue and certain actions must be taken. With a black market as massive as India’s, it will be difficult to move forward.
What Does The Future Hold For India:
By no longer using 500 and 1,000 rupee notes, Modi has geared up his anti-black market attacks. Unfortunately, more than half of the population does not have a bank account and approximately 300 million do not have a basic ID and therefore cannot access the banking system.