FINDINGS, SUGGESTIONS AND CONCLUSION

Transcription

1 CHAPTER VII FINDINGS, SUGGESTIONS AND CONCLUSION In this Chapter, the summary of the main findings of the study is presented and suggestions have been given for the benefit of gold trade in India with special focus on Trading PSEs who have been nominated to import gold. In the beginning of the study, a review of the world gold scenario has been discussed at length. Though voluminous information and data is available in the area of finance and banking, only important and related work is reviewed. Such a review has facilitated a comprehensive knowledge of World Gold Production, Trade and Role in the economy and has enabled to adopt, modify and formulate the contents of the present study and draw meaningful conclusions. Further, the study discusses about the Indian gold scenario, with the role of State Trading Corporation. STC is playing a very important role in monitoring and controlling of gold import and export in India. A summary of important findings and discussion of this study are presented in this chapter as followed by suitable suggestions. FINDINGS From 1870 until 1914, monetary system operated on the gold standard and international trade transactions were settled in gold. Result of First World War and Second World War increased the pressure on gold prices. The supply and demand of mine production on an average estimated from 2550 to 3250 tonnes respectively per annum. Low inflation and soft interest rates in the recent years have brought about a greater sensitivity among central banks on as their portfolios. 225

2 World gold production went from 2997 tonnes in 1996 to 3277 tonnes in The demand for gold went up simultaneously from 3504 tonnes in 1976 to 4436 tonnes in Hence the deficit market balance managed from 507 tonnes to 1159 tonnes. Gold price is alo increased from US $ 388 per oz to 390 per oz in World gold holding as on June 1999 stood at 35,588 tonnes. European monetary union alone got 12,447 tonnes South Africa, Russia, Canada, Brazil and USA are the major producers of gold in the world. India is one among the major consumer markets of gold. London Bullion Market Association (LBMA) is fixing the price for the gold daily for international market. Swiss Bank Corporation is fixing price from 1947 onwards like LMBA. Hong Kong is playing a greater role for the East and Middle East. Hedging or speculation in gold trading to assume a business risk is hope of gain. Annual demand for gold in India has been estimated in excess of 800 tonnes. Impact of gold have been authorized by RBI has succeeded to a large extent in curtailing illegal operations. More than 80 percent of the jewellery sold in the market was of lower purity than claimed. Bureau of Indian Standards (BIS) with control consumer protection council has taken necessary steps to assaying and hallmarking of gold jewellery from 1998 onwards. The Government of India announced the Gold Deposit Scheme in Import of gold has been authorized by the government only to few nominated agencies like State Trading Corporation of India Ltd. The Minerals and Metal Trading Corporation, Handloom and Handicraft Export Corporation, Project and Equipment Corporation and Banks like SBI, Standard Chartered Bank, ABN-AMRO Bank. Import 226

3 of gold will be aligned only by vigorous procedures. India has a long innings in its gold regulation. India s holding estimated at 9932 tonnes and 6.5 percent in world gold holdings. Role of RBI is widely accepted for the gold trade and gold standard and exchange. India s gold economy is a special in nature when compared with other countries. STC has imported gold/silver from Rs.682 crore in to Rs.1250 crore in STC has entered into supply agreement with various foreign bullion suppliers like Swiss Bank, Union Bank of Swiss, South Africa, France, Commerce Bank, Luxumberg, Dubai and London. 55% of the respondents organization belonging to proprietary concern; 20% of them each belonged to closely held and partnership concern respectively. 30% of them belonged to retailer; 20% of them each wholesaler and importer and jewellery manufacturer respectively, 15% of them each respectively from importer and jewellery exporter. Staff strength is significantly hovering in between 20 to 50 in 50% of the respondent units. Manpower requirement is very less in this trade.annual turnover is normally from Rs.10 crore to Rs.100 crore in all the 4 years of survey from Monthly requirement of gold is minimum 20 kgs and maximum is 220 kgs. Import of gold is made out of foreign banks contribution by 40%. Nationalized bank and trading CPSEs are by 20% respectively. Majority of Indian bullion traders importing from Dubai and Singapore and minimum quantity from UK. 40% of the traders are doing the Hallmarking gold materials. 50% are in their process of Hallmarking concept. 227

4 The requirement of gold for the financial year estimated from 700 tonnes to 900 tonnes per year.. The performance rating is high a far as foreign banks to import the gold from other countries. 100 % of them favoured for reduction of customs duty. 25% of them favoured for setting up of Bullion Market Exchange like Stock Exchanges in India. Very few understood that VAT and they need (50%) to change the current tax system. 100% of the respondents felt that procedure for importing of gold is cumbersome and time consuming. 50% of them opined that customs duty will affect the government revenue severely. 75% of them are in favour of scrapping of customs duty. 60% of the respondents required to change from the present system to new system including OGL. SUGGESTIONS It would only be logical to assume that the need for a review of the overall policy stance with regard to gold now being increasingly felt in official circles. As with other areas of liberalization, the direction of change will certainly be positive, although it would be difficult to imagine any specific time frame. However, the following issues are likely to be the focus of policy. 1. Strengthening of the infrastructure and market in physical gold. More assaying, refining and recycling capacities of international standard and accreditation are expected. Technological collaboration with established international name is sure to occur. 228

5 2. Better protection for consumers, by way of the spread of hallmarking of jewellery. The emphasis will continue to be on more self regulation by jewellery manufacturers and retailers. 3. Further, liberalization of the gold import regime is a live issue. Removal of all the remaining restrictions of gold imports has been advocated by many of the following grounds. In Indian legal parlance this would mean placing gold under full Open General License (OGL) enabling any one to import gold for any purpose. However, in the interim, i.e. before eventual full import liberalization, it is possible that the government will do away with the requirement of payment of duty in foreign exchange for the NRI route. 4. Regulation of the physical and financial markets in gold is another major issue. Regulation in general means formulation of norms (followed by surveillance in respect of observance thereof) by the regulator for (i) risk assessment and control for the regulated institutions, and (ii) investor protection. Certain developments in the last few years have highlighted the risks for nominated banks in dealing in physical gold. Risks associated with gold banking are beginning to be felt. It is time; a regulatory mechanism for the physical market is put in place. Here again, the past could provide a good guidance it would be worthwhile to examine, among other things, the self regulation practiced by the Bombay Bullion Association in the past. 229

6 As regards the regulation of gold banking, it would be efficient to integrate it with the regulation for other activities. As regards investor protection, first and foremost the legal character of all gold related instruments needs to be defined. 5. Bringing the gold held by the private sector into the economic mainstream has rightly been an objective throughout. Mobilization of gold by the government in the past did not yield any major long term benefit. Any government-led mobilization has inherent disadvantages. A better alternative would be to allow holders of gold to raise capital from the banking system by way of pledge. It would be inconsistent with the spirit of liberalization to discriminate against those who saved in gold in the past. 6. If development of e-money in the west is any indication, it is possible that a private sector unit of account that is linked to gold may come into existence in India, given the facts of huge private sector gold stocks. India s tremendous progress in the IT area, and the fast spread of Internet in the country, the demand for private alternatives as regards store of value/medium for transaction is growing in some countries. It would be advantageous to look into this possibility. 7. Does gold have any official monetary role left in India? Not much in a formal sense. Long before the demonetizations of gold in the international monetary system in the post-bretton Woods era, gold s role in currency issue was brought to a level of insignificance in India. The dejure position for the last 45 years is that for gold backing against currency issue, there is a minimum level prescribed, which is quite modest at Rs.1.15 billion. The de facto position is that gold has been maintained at a much higher level, currently at around 360 tonnes. At the current level of currency circulation, gold provides a backing of approximately 6%. 230

7 It is well known fact that even in the present age of flat money enforced with coercion; currency competition is a fact of life. Consumer preference, even with regard to the choice of medium of exchange/store of value, has it own way of expressing itself, no matter what the legal and other restrictions India should allow gold import freely as per the provisions of the EXIM Policy notified on Direct import of bullion may be permitted to following categories:- Direct import of bullion through all commercial scheduled banks/agencies and star trading houses. Gems and jewellery importers/exporters having IEC No., who are not in the negative list/black list of DGFT. The bullion may, however, be sourced from the LBMA members by this category. In all such cases it should be ensured that the bullion is cleared through the Cargo channel (and carriers not permissible). Duty free Gold import through NRI channel may be brought down to 1 kg. Per person. Free import of bullion will reduce the premium charged on use of small quantities of gold. Even domestic users can use the facility for their private purpose for investment or for personal needs. The secondary market for gold certificate, gold bonds and mutual funds based on value of gold, as an investment vehicle will develop, as a result. All states may be encouraged to follow an uniform VAT regime. Octroi/local taxes/cess may be done away with or may be merged with VAT. This will make the practice of internal or domestic circular trading in gold redundant. 231

8 This will help in employment generation in the country, provide greater incentive to produce jewellery to cater to the world market and also develop capacity for better designed jewellery. The volume of jewellery exports from India may rise, helping India to emerge as a jewellery manufacturing hub. International players in the jewellery manufacture may shift base to India, thus improving the technological and design base of the industry. India can become a Gold Trading Hub. Duty free import of alloys/consumables/raw materials/machinery for the jewellery manufacturing industry may be allowed for the development of India as the world trading/manufacturing hub and to boost employment. All imports should be through regular banking channels only, i.e., financial transactions should be through banking channels. Free movement of gold should be made within the country. There should not be any difference in duty between serial numbered TT bars and other TT bars. There is a need for an integrated national policy on gold, covering trading, import, jewellery export, investment, refining even though guidelines exist for a few sub sectors. Import policy for gold should be further liberalised to put an end to smuggling and hawala activities. Selected canalizing agencies may be allowed to import gold subject to some annual ceiling that could be prescribed. Import duty should be brought down further as: 232

9 1. high import duty encourages to a great extent, smuggling of gold, as it becomes a lucrative proposition with the differential between gold prices in the Indian and international markets increasing; and 2. it also effects adversely the gold trade of the country. When high duties are to be paid the gold will be bought at higher rate, which means that ultimately the customers have to bear the price increase. Further, liberalization would in fact reduce transaction costs and the role of unsocial elements. It will open up prospects for more aggressive export trade and help the economy. There could be fiscal gains also to import and export taxes. However, if import of gold is to be liberalized, it would be necessary to evolve a framework for regulating the import trading and market making in gold and gold related product. It is desirable to introduce uniform trading practices all over the country in view of the high turn over in the bullion trade and the country s potential to become an international centre for bullion trading. Standardization of market practices would lead to transparency in dealings, investor protection and market efficiency and could be prescribed for whole sale trade in bullion. Efforts should be made to reduce the demand for gold to some extent. This can be done by : 1. Fixation of quantitative ceiling on holdings per family and per individual. 2. Reduction of gold content of jewellery to say 14 carats. 3. Creation of alternative assets with attractive yields and introduction of gold bond scheme/gold securities. 233

10 4. Imposition of tax on the jewellery component of wealth at a higher rate. 5. Administrative measures including strong and quickly effective penal measures for tax evasion, where such evasion exceeds a specified penal limit. A separate statutory body should be set up with statutory powers to oversee the whole sale bullion operations and provide focus to trade. This body should also examined and take steps to upgrade the standard and quality of the refineries in the country. Hallmarking of gold jewellery should be introduced in the country at the earliest as a measure of consumer protection. Thus, liberalisation should go hand in hand with a transparent regulatory mechanism. The challenges are many, the opportunities are tremendous, and the gold refining industry is looking forward, to necessary policy initiatives from the Government of India, so that we can emerge as the global hub of gold and Jewellery processing, rather than to continue to remain as the world s biggest gold importer and consumer only. With the commencement of (i) Exchange Traded Funds (ETFs) in Gold, (ii) Futures Trading in Gold and the Commodity Exchanges in India, with support of present Regulatory Authorities viz Forward Market Commission (FMC) and Stock Exchanges Board of India (SEBI) as also the country s Central Bank in India (RBI), the scenario appears to be changing. Empowerment of the CPSEs is the most significant and urgent requirement for preparing them to emerge as truly global entities. However, the government should now provide autonomy and empowerment to the entire public sector rather than to a select few enterprises. The success of various empowerment and reforms schemes and instruments in use for more than a decade should give greater 234

11 confidence to the government to address the entire public sector to motivate them and enable them to make a paradigm shift in their corporate performance in the interest of the national economic growth and development. The review, analysis and appraisal throws up some distinctive conclusions for an integrated and holistic policy, which can create an hospitable positive and creative ambience for the public sector to perform better and be globally competitive world class entities. An endeavor may be made to recapitulate the essential components. The Public Sector in India has performed the task is assigned to it reasonably well, given the constraints. There are aberrations, but all are not of its making. The acquisition and operations of bankrupt private sector companies was, for example a result of a decision imposed on it. The public sector s main objective was socially-focused, in many cases by the conception of enterprises and in others by their mechanisms. The administered prices were not commercial viable, which implied subsidies, commercial enterprises cannot provide large subsidies and generate high profits. Empirically, the performance of the public sector, seen in its total perspective, is comparable to that of the private sector, although the former s perceived sub-standard performance has received recurrent and flashing limelight. On a rationally comparable basis, the profitability of CPSEs more than matches with that of the total private sector It is universally admitted that there has been very little autonomy in public sector enterprises. Vital clearances and sanctions for decisions from conception to commissioning to current operations have often been delayed for months, 235

12 years and even decades. Many turn-around programmes remain non-starters. Apart from the dilatory clearances, there has been marked positive interference. Despite the bureaucratize procedures which the public sector undertakings have had to follow, a high degree of professionalism has taken place with far more focused and efficient HRD interventions. The Public Sector has established management and training institutes of which any industrial or service organization can be proud. PSEs are working on a new agenda of global competitiveness and have envisioned even launched expansion, diversification, modernization and restructuring programmes. These moves should generate handsome returns. Undeterred by the changing and highly de-establishing pronouncements on privatization and disinvestments, which have created uncertainties and demoralization, the public sector has produced enough evidence that it marches on to meet the challenges of the new millennium. The structure, vision, goals and systems of the public sector have gone through a whole reformation. At the threshold of the year 2001, the public sector in India is no longer the public sector of the early 1980s or even the late 1980s. Since the onset of the economic reforms programmes, even the Government of India has taken several positive stems declaring selected Central Public Sector Enterprises as Navaratna and Mini-Ratnas with some doses of autonomy. The concept of Memorandum of Understanding (MOU) system initiated by the Government of India and signing of MOU every-year by the respective Administrative Ministries with their respective Central Public Sector Enterprises and its evaluation process has proved very successful, resulting in substantial growth of the economy. Assured of the freedom to operate under new standards of 236

13 corporate governance now advocated by professional dispensation, the public sector is confident to be globally competitive. Given the dictates of global competition and need for professional corporate governance, both sectors are slowly but steadily inching towards convergence. Privatization, as such, is partly a redundant and partly in obsolete concept. There is a need to be innovative in discovering new models of corporate governance. The focus, under the MOU system, has shifted to achievements of results. Operational autonomy has also been encouraged and increased by delegation of more financial and administrative powers to the MOU signing CPSEs. By laying stress on marketing effort and comparing with private sector enterprises MOU are helping CPSEs to face competition. The quarterly performance review (QPR) meetings have become more focused since the introduction of MOUs. Discussion is confined to overall achievement as outlined in the MOUs. These Central Public Trading Enterprises find it extremely difficult to face internal competition with Nominated Banks both Nationalized Banks as well as private Banks, let alone external factors. To illustrate an example, when the trading PSEs deals with import of gold, they have to cover foreign exchange requirement for payment of import bills to the foreign supplier. When fixing the prices as well as buying dollars, these trading public sector enterprises have to approach the same authorized Nationalized Banks or Private Banks and necessarily have to incur heavy charges and more often lose in the parity of rupee-dollar rates. Whereas, for these services, the Nominated Banks can themselves undertake for their import and sale of gold and there are additional 237

14 expenditure and or charges are payable by them, thereby, the Nominated Banks have better advantages in trading gold. In the case of Nominated Trading PSEs, these charges have to be passed on to the ultimate Customers / Buyer who find the final cost of import and trading through these nominated trading PSEs are commercially unviable. Further, in respect of Operation of Gold-Loan Scheme, the nominated banks terms and conditions are attractive to gold traders/ Jewellers, than the terms of Central Trading PSEs like the 4 mentioned above. It is, therefore, recommended that the Government of India has to take into account these constraints of Central Trading PSEs vis-à-vis Nominated Banks and the Government to come out with suitable mechanism of level-playing-field. The Central Government should encourage, as also facilitate the Central Trading PSEs engaged in gold trading, to set up world-class gold refining units in India, in collaboration with well repute foreign refiners and Indian Corporate, under Public-Private-Partnership (PPP) model. In that direction, single-window system of clearances, procedural complications and gold-refining-advisorycommittee may be considered by the Central Government. It would be appropriate to suggest that perhaps, the Central Government may consider setting up of a Gold / Bullion Regulatory Authority of India (BRAI), (similar to various autonomous Bodies viz APEDA, TRAI) which may take care of all such issues facing the nation in Bullion Import, in the total interest of Indian economy, considering the substantial revenue to the Government of India, generation of employment and other social-economic aspects. 238

15 Conclusion Given the basis of foregoing conclusions, and to face the challenges of the new millennium, the Public Sector has, as it were, to be re-invented with a new vision. Five pre-requisites seem to emerge: A new vision: The Public Sector has to have a vision for itself. The vision shall be of a self-reliant sector with world-class globally competitive and dynamic constituents of Government Enterprises. A new ambience: The Public Sector to perform shall need total freedom of action, functional autonomy, operational flexibility, financial freedom within the framework of broad social and economic policies with total professionalism unimpeded by administrative control and road-b locks. A new mandate: The public sector has to follow best practices with global benchmarks consistent with a code of business ethics and standard-values. A new direction: The public sector should be committed to all stakeholders shareholders consumers, workers and the society and not be obsessed only by shareholder-value, to-day s mantra of private companies enterprises and financial analysis. A new Commitment: The Public sector will need to unleash continuous improvements through value addition all along the value chain. Financial Institutions, public issues, etc. The entrepreneur s funds are minimal, which he also takes out during constructive period. The government nominees are ornamental and cannot do much because they are not involved in the everyday work of the private sector. 239

16 Let us look into the constraints of the public sector. For one, it is like tying the hands and feet of the CPSE management and expects it to swim. It is another matter that most of them still reach the shore! The Managements of CPSEs are accountable to parliament, vigilance authorities, various important committees, Hindi implementation committee, committee of public undertaking (Parliament committees), administrative ministries, CAG, government Audit and other ministries. Besides, there are administrative disabilities like appointment of CEOs of Central Public Sector Enterprises and Directors. Most of the time, the top Management in a CPSE is busy answering the committees, vigilance and parliament. Apply these constraints to the bestmanaged private sector company and see how long it lasts. Every one talks of the efficiency of the private sector, its managerial capabilities, financial discipline and performance. Though the empirical data of task-force on CPSE by Department of Public Enterprises provides sufficient information to substantiate the points of Private Sectors and Corporate, the author is not dwelling further in this regard. However, be it personnel, efficiency, competence or performance, the public sector is, indeed, far ahead of the private-sector. Suggestions for better performance Disband the Disinvestment Ministry and let each ministry take decision on its companies. Remove the constraints from the PSEs and judge their performance for three years. If the performance is still negative, take further. 240

17 Selling profit-making CPSEs is nothing but privatization of profits and selling family silver CPSE without Government support. If any, are making profit and paying dividends they should be taken off the list of the disinvestments. No government support should result in No government interference. Such CPSEs should be given the freedom to operate profitably. The role of ministries should be limited to just watch and not interfere. CPSEs understand better than ministries. The public sector has been the backbone of India s economy and major contributor to its growth since Like our country, Central Public Sector Enterprises too need freedom from the chains of Five-Tier Audit-System, Committees and Parliament. Then see how they perform. There is no harm in government being in the business, but let it be business when Central Public Sector Enterprises (CPSEs) are self-generating and need no funds and the budgetary support from the Government. 241