Analysts said India's anti gold policies would hurt country's middle class who has traditionally invested in gold as a hedge for bad times and force them to look else where for gold, smuggling gold.
NEW DELHI(BullionStreet): From World Gold Council to a villager in rural India, everybody is criticizing gold policies of the Indian government and the central bank.
The world's largest gold consumer had imposed various measures to cut gold imports and consumption as it battling a record high current account deficit of 6.7% of GDP, which in turn has pushed the Indian currency to a record low.
Country's central bank, the RBI said restrictions on overseas purchases by banks on a consignment basis will be expanded to include state-run trading companies and others authorized to directly import gold.
India's anti gold policies have already sparked up reactions from across the world and critics are raising several factors to support their claims.
They said the government cannot ignore the $6 billion strong gold economy of the country that employs over half a million people for too long.
They argued that there were several factors which influence the current account deficit and gold is only one factor.
Many experts believe India's change of policies could create a major impact on global gold market in general and particularly to the Indian market at a time when rampant economic growth swelling the country's middle class who can afford to buy more gold.
They added that these policies would hurt these middle class who has traditionally invested in gold as a hedge for bad times, and force them to look else where for gold, smuggling gold.
However, some analysts said India's policies to create more non-gold savings avenues could help rural consumers to consider newer instruments that could lift rural economies.
India's central bank announced plans to open a bank branch or roll out access to financial services in all villages more than 2,000-strong to potentially diverting savings away from the precious metal.
But critics have a strong point to make, India's love affair with the precious metal. Indians will look for gold everywhere and that might pave way for large scale smuggling in to the country.
Pointing to chances of increase in smuggling, WGC said curbing supply may have a short term benefit but this demand will be met by the unauthorized grey market and this will not be positive for either the economy or for society.
Last year alone, nearly 200 tons of gold was smuggled into India and with government cut on imports, this may rise to 300 tons.
Another area to be hit by RBI's move to stop co-operative banks from lending gold loans is the rural banking sector, depended by millions of Indian farmers.
Until the anti gold policies came along, demand for gold loans has been on a steady rise in India’s rural areas and many banks were registering significant growth in their gold loans portfolio and are also focusing on attracting more customers.
Although,nobody expect India to reverse it’s anti gold policies in near future, these moves are unlikely to put an end to traditional gold buying in India, but it should have a negative impact on official overall volumes of the country as smuggled gold can fulfill the ever increasing gold demand only unaccounted.