India is now facing a setback owing to anti-gold policies of the government as the gold purchasers are forced to pay high premiums every year.
The recently published capital convertibility report by the Reserve Bank of India - an indepth post independence report - has stressed a liberal gold policy while taking steps to develop a transparent and well regulated gold market which will link other financial markets to move successfully towards capital account convertibility.
In an interview, former Bullion Association president and bullion expert Shantilal Sonawala welcomed the gold import liberalisation but suggested that before liberalising imports India should make a reasonable demand estimate of the yellow metal.
The octogenarian suggested that public should activise their gold stocks.
The primary requirement for a deep and liquid financial market in gold is to have an open physical transaction with no hindrances - both internal or external - he said.
The gold market was started by the Choksis, who melted the metal and then sold it to wholesellers or consumers.
During 1914-1918, there was brisk bullion business and 69 leading Choksis formed the Silver Merchants Association to fix delivery dates and arrivals. During 1920, it transformed itself into the Bombay Bullion Exchange and registered itself as Bombay Bullion Associaiton Ltd in 1923 with a capital of Rs 10 lakh.
The exchange constructed a four-storey refinery house with on-trading ring and board room. It was sold to the association in 1948 at Rs 53 lakh.
Sonawala said that until the second world war export and import of precious metals was prohibited, but in 1945 the British government permitted free sale of precious metals in the country and opened the doors for gold trade.
The company permitted forward contracts for a one month period based on the lunar calendar.
The option delivery was also allowed on a monthly basis and settled on the 13th day of the lunar month. To avoid non-delivery, the board and vepari mandal appointed a committee known as the clearing house committee to supervise the settlement delivery auctions.
During 1923 to 1943, the market was regarded globally as a sound and systematic one. It became an international market with traders from London, China and New York providing working capital gold loans to jewellery manufacturers and traders.
The primary requirement for a deep and liquid financial market in gold is to have an open physical transaction with no hindrances - both internal or external
