India Gold Policy Centre at IIMA Conference: Gold and Gold Markets 2021

Prof. Arvind Sahay & Sudheesh Nambiath

India Gold Policy Centre (IGPC) at IIMA organised its 4th annual conference - Gold and Gold Markets (GGM) - on February 05 and 06, 2021. GGM is the only conference of its kind with varied discussions with the thought leaders from the industry and academia and policymakers. The travel constraints required us to hold the conference online.

The conference had representations from the Department of Economic Affairs (DEA), International Financial Services Centres Authority (IFSCA), Organisation for Economic Co-operation and Development (OECD), World Gold Council (WGC), Multi Commodity Exchange of India Ltd (MCX), National Stock Exchange of India Ltd (NSE), Indian Bullion and Jewellers Association, All India Gem and Jewellery Domestic Council, Gem and Jewellery Export Promotion Council, Association of Gold Refineries and Mints (AGRM), National Institute of Design, Indian Banks' Association (IBA) and Metals Focus. Research paper presentations were from the following institutions: the University of Delhi, the University of Mumbai, Dvara Research, the University of Madras, Centre for Policy Research, Clearing Corporation of India Ltd, the Reserve Bank of India, the University of Western Australia, IIM Kozhikode, XLRI Jamshedpur and IIMA.

Shri Injeti Srinivas, IFSCA Chairman, presided as the chief guest and discussed the role of and opportunities at IFSC and how the International Bullion Exchange (IBE) is envisaged to operate. IFSCA is the first unified regulator in India and has the remit to regulate the services in the IFSC zone. It possesses the powers of a regulator empowered through 14 central acts. In all 14 acts, it assumes the power of a domestic regulator for all financial institutions coming under IFSCA, making it a unique aspect. One of the market infrastructures being established at IFSC is the IBE. The exchange is expected to change the way gold is imported into the country, and it aims to make India a major gold trading hub globally. The Finance Minister announced the need to set up IBE at IFSC in the 2020 federal budget. To take the initiative forward, IGPC was onboarded as a consultant to IFSCA. IGPC, with its' expertise in understanding the bullion markets and the connection with the industry, is seen to facilitate discussion and construct a path to successfully implementing the exchange.

On day two, Shri K Rajaraman, Additional Secretary, DEA (Investment & IER), presided as the chief guest. He talked about the projects with IGPC and the projects the centre should be considering to work on. In his speech, he urged IGPC to get a deeper understanding of institutional holdings of gold, consumer behaviour towards gold and changes in consumer behaviour post-COVID. IGPC was asked to conduct a study on the regulatory framework for digital gold in India, the gold-refining industry and the successful domestic spot exchange operation for gold. Continuing with Gold Monetisation Scheme's work, he asked IGPC to propose the communication strategy to help reach the right audience. He also asked IGPC to continue with its articles and publish them in various languages to get the message nationwide.

The message from Mr David Tait, CEO, WGC, was about building aspiration, overcoming obstacles, outer self-belief, total resilience and worthy success. The inspiring keynote speech related the five successful climbs to Mt Everest and the lessons for policymaking. The address was set in the context of the conviction and persistence required to achieve the goals set for reforming the Indian gold market. Each step towards achieving the goal was related to the base camp.

The panel discussions for two days were on varied topics. The panellists deliberated how the new products are shaping the gold trade business. NSE and MCX explained their initiatives. MCX made a detailed pitch on the one-gram contract, the first of its kind globally. According to MCX, retail investors' response to this product was overwhelming. NSE discussed the success of its options product. The topic on initiatives related to responsible sourcing and its implementation was a common point for discussion.

Mr Terry Heymann, CFO, WGC, and Mr Tyler Gillard, Head of Responsible Sourcing Guidance at the OECD, delivered an elaborate discussion on responsible sourcing (environmental, social and governance). After that, the deliberations with the Association of Gold Refineries and Mints reassured the commitment from Indian refiners to adapt OECD's responsible sourcing guidelines.

The second-day sessions were related to IGPC's collaboration with Indian Banks' Association to organise a workshop on bullion banking for Indian banks, which we eventually organised on March 20, 2021. The fireside chat by IGPC's Senior Policy Consultant with the Joint Secretary, DEA, helped clarify the Gold Monetisation Scheme's path forward.

Of the 10 papers presented and discussed, some of the insightful research papers were as follows:

An empirical analysis of efficiency in the Indian gold futures market: The work by Dr Golak Nath, Mrs Vardhana Pawaskar and Mr Manoel Pacheco went on to find that the futures market does not serve as an efficient hedging instrument for the domestic spot price movements but plays a better role in hedging the variation of the international gold spot returns.

Gold demand across countries: The findings of this research work by Professor Dirk Baur established that jewellery demand is negatively affected by gold prices and immune to global risk changes; bars and coins are positively affected by gold prices and not immune to global risk changes; jewellery is used for normal consumption, whereas bars and coins are used as a financial asset; unlike in high-income countries, there is a huge demand for jewellery in middle-income countries; and the GDP effect is much stronger on middle-income countries' consumption.

Central bank gold reserves and sovereign credit risk: The paper by Professor Arvind Sahay, Professor Sanket Mohapatra and Mr Sawan Rathi validated that, as the central bank gold reserves increase, the value of the CDS spread decreases. The central bank gold becomes more important in times of crisis. Gold reserves mitigate the effect of crisis episodes (high global volatility, debt crisis and currency crisis) on sovereign credit risk.

Savings in gold by low-income households: Ms Monami Dasgupta and Mr Rakshith S Ponnathpur of Dvara Research, through this paper, emphasised the scope existing for well-designed gold-based microsavings products that match with the low-income households and the need to encourage these households to accumulate savings systematically. It also looked into the demographic factors influencing the savings in microsavings products.

HR practices in the jewellery manufacturing industry: The preliminary results of the study presented by Professor Biju Varkkey and Professor Jatinder Kumar Jha touched upon the working conditions among jewellery manufacturers in India and shared their initial observations on ways to improve their conditions.

Photo - Left to Right: Mr Sudheesh Nambiath, IGPC @ IIMA; Mr Haresh Acharya, Director, IBJA; Professor Errol D'Souza, Director, IIMA; Shri Injeti Srinivas, Chairman, IFSCA; Professor Arvind Sahay, Chairperson, IGPC @ IIMA.

About The AuthorS

Prof. Arvind Sahay

Prof. Arvind Sahay

Ph.D. The University of Texas at Austin

Sudheesh Nambiath

Sudheesh Nambiath

Head, India Gold Policy Centre at IIMA

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