FROM THE DESK OF RAJESH BAJAJ

Gold Market India to eye on Vikasit Bharat 2047!

The vision of Viksit Bharat 2047, which aims to transform India into a developed nation by the country’s 100th year of independence, holds great promise for the country’s future. A comprehensive approach encompassing economic growth, social advancement, environmental sustainability, and governance reforms is necessary to achieve this ambitious goal.

One critical area requiring focus for India’s development is enhancing transparency and efficiency in sectors like the gold market. Cash transactions have dominated gold purchases in the past, but as India progresses toward becoming a developed economy, embracing digital payments in the gold market is essential for a sustainable, transparent, and robust financial ecosystem. Shri Narendra Modi suggests a less cash economy!

A recent report from Metals Focus examining the state of the gold market in India sheds light on a major challenge hindering the sector’s evolution. Cash continues to be the preferred mode of payment for gold purchases. The research, which spanned over 25 cities, found that cash transactions account for 50-60% of purchases in metropolitan areas and 70-80% in smaller towns and rural regions. This trend has persisted despite growing awareness of digital payment options.

According to the Target Group Index (TGI) study by Kantar for the World Gold Council, cash transactions for gold accounted for 67% of total purchases in 2018 and 2019. Interestingly, women over 35 constitute a significant portion of cash buyers. While the widespread use of cash for such high-value purchases often raises concerns about transparency and tax evasion, it’s important to contextualize the situation.

Metals Focus’s research reveals that 80-90% of large retail gold purchases made in cash are backed by invoices, ensuring the payment of customs duties and GST. Furthermore, approximately 50-60% of gold purchases occur in rural areas, where agriculture remains a significant part of the economy.

Many of these transactions are made in cash because rural consumers, especially those from agrarian backgrounds, prefer to avoid sharing their bank details or using digital platforms. Despite this, the money used in these transactions often exists within the formal banking system. Thus, not all cash transactions should be considered unaccounted for.

Moreover, the Reserve Bank of India’s Household Finance Committee highlighted that gold is sometimes used for tax evasion. To curb this, it has been suggested that the PAN card requirement for all gold transactions, irrespective of the value, be extended and an electronic registry for all gold transactions be implemented.

For India to realize its goal of becoming a Viksit Bharat by 2047, it is vital to move towards digital payment methods, especially for high-value purchases like gold. Digital payments offer greater transparency, security, and efficiency, and as the government strives for a developed economy, these benefits must be fully harnessed.

The Unified Payments Interface (UPI) introduction has been a game-changer in India’s digital payments landscape. Launched in 2016, UPI enables seamless, real-time transfers across multiple banks using a single mobile application. By 2024, UPI had processed an impressive Rs23.49 lakh crores in transactions, marking a 45% growth from the previous year.

With more than 632 banks integrated into UPI, this platform has become integral to India’s payment ecosystem, processing over 16.5 billion transactions in October 2024 alone. This surge in digital transactions reflects a more significant shift in consumer behavior.

As UPI and other digital platforms gain widespread acceptance, there is an increasing move away from cash transactions in many sectors, including gold purchases. A notable advantage of UPI is its simplicity and security, providing users with a transparent method of transferring funds that aligns with the government’s push for a less cash economy.

The World Gold Council has observed that many large and medium-sized jewellers are now renegotiating the Merchant Discount Rate (MDR) with banks, bringing down the cost of digital transactions. This change encourages more jewellers to accept credit and debit card payments, making it easier for consumers to purchase gold using digital methods.

UPI’s success is not limited to its impact on the domestic economy. Its global footprint is rapidly expanding, with its services now available in countries like the UAE, Singapore, Bhutan, Nepal, France, and Mauritius. Prime Minister Shri Narendra Modi has also advocated for UPI’s inclusion in the BRICS grouping, highlighting its potential for global financial inclusion.

For India to emerge as a Viksit Bharat by 2047, digital transformation across key sectors, including the gold market, will be essential. The ongoing shift from cash to digital payments, primarily through platforms like UPI, will enhance transparency, reduce the risks of tax evasion, and foster a more efficient and secure financial ecosystem.

As the country continues its journey toward becoming a developed nation, integrating digital solutions into traditional markets like gold trading will play a pivotal role in shaping India’s economic future.