Why India plays dismal role in global gold trade

India may be the largest consumer of gold in the world; but not only that the quantity of gold that the country produces is dismal, but it plays no influencing role in determining the pricing of the yellow metal.

According to a study from the Associated Chambers of Commerce and Industry of India, India will continue to remain the largest consumer of gold while projecting that domestic gold demand is expected to rise to 980.83 tonnes by 2010 and to 1152.64 tonnes by 2015, against the current demand of 800 tonnes.

India imported an estimated 443 tonnes of gold during in the first six months of the current fiscal, valued at $5.82 billion. But the country's domestic gold production was at 3.05 tonnes during the financial year 2006, as compared with 3.53 tonnes during 2005.

"India as of now estimated to hold nearly 14,000 tonnes of gold, accounting for 9 per cent of the world's cumulative production of around 153,000 tonnes. India's import percentage of gold bars in 2005 stood at 7.4, while the figure up to July 2006 is 6.6, making it one of the largest purchasers of coins and bars for investments," the ASSOCHAM study states.

But it is surprising that though India consumes almost a fourth of the world's gold production, the country plays only a marginal role in influencing policies pertaining to the precious metal's pricing, output or quality.

Experts point out several factors behind this dismal state of affairs in India's global gold trade.

First, they say the Indian government and the top policy makers have taken a negative role regarding the role of gold in the domestic setting. Some of them have articulated vehemently that gold is unproductive investment.

The thinking by policy makers is that the purchase of gold by households for jewellery is

not productive and therefore should be discouraged.

Secondly, all these years India has been unable to occupy the high table in global gold trade.

Thirdly, look at the statement made by Deccan Gold Mines Ltd, the country's first publicly listed gold exploration company.

Accroidng to Sandeep Lakhwara, Director, DGML: "The whole process of application for the mining activity in India is too complicated. Starting from small offers to senior officers in the forest departments, wherever it is concerned, we have to approach each and every authority, which is very time consuming."

"We have to deal with at least 20 government authorities for the process of reconnaissance permit, prospecting license and mining lease. If the government can fast track the process, we can fast track implementation," he said.

DGML, which recently identified 15 prospects in the southern India state of Karnataka, containing gold mineralization, is concerned about the red tape.

To compound the misery of gold mining prospectors, high customs duty on certain equipments, necessary for the operations, are creating further hindrance.

"There is a lack of adequate 'reverse circulation' drilling facilities in India. Hence, the equipment has to be imported for which 120 per cent duty is imposed, which should be reconsidered," Lahkwara adds.

Therefore, it is high time India classified gold an attractive investment and allowed more private players into gold mining.

It is also high time that India, the largest purchaser of gold, like any large purchaser of a commodity, should leverage on its `buyer power'.

China leverages its position as a major consumer of many industrial goods. India needs to do that with gold, fast to ensure that the country is an influencing factor in world gold trade.