The economics of gold is enmeshed in several socio-economic problems in India. For instance, the smuggling of gold, drug trafficking, foreign exchange leakage, black market in foreign currencies, under and over-invoicing in exports and imports trade, unaccounted incomes and wealth, black or parallel economy and tax evasion are issues in one way or other linked to the purchase, sale and holding of gold and gold jewellery in India. Since gold forms part of the reserves of the Reserve Bank of India, it has implications for money supply and price levels.


The prohibition on the import of gold existed in India ever since 1947. The Gold Control Order 1963 and the Gold Control Act 1968 contained tight controls on the gold-related activities. However, the Gold Control Act failed in curbing the domestic demand for gold jewellery. The insatiable demand for the yellow metal has continued to grow.  The Gold Control Act also failed to control the smuggling of gold. The Act placed hurdles in the export production of gold jewellery in India, when countries such as Italy were riding ahead in world gold jewellery exports.


The Gold Control Act placed severe restrictions on goldsmiths, gold dealers and gold jewellery exporters. The quantitative restrictions did not permit large quantity production for satisfying overseas orders, which are usually large. The Act did not allow a certified goldsmith to receive more than 100 gms of standard gold for manufacturing jewellery. A Certified Gold Smith was not allowed to possess a stock of more than 300 gms of primary gold at any time. The quantity of primary gold in the possession of a licensed dealer was limited to between 400 gms and 2 kg., depending on the number of artisans employed. There existed a legal ban on transactions between one dealer and another. The Act also required gold dealers to operate from licensed premises only. This restriction was a hurdle to exports as foreign buyers could not visit widely scattered places of manufacture for inspection and buying.


The Gold Control Act was abolished in 1990, the year in which the Government of India had to transfer 40 tonnes of gold to London and swap for foreign exchange to tide over the country’s balance of payment crisis. India had hibernated during the gold control era and missed the opportunities for gold jewellery exports while even smaller Asian countries like Thailand and Malaysia could record quantum jumps in gold jewellery exports. The prospects for gold jewellery exports from India have now brightened.


After the abolition of the Gold Control Act, the Government introduced further reforms. Import of gold was allowed on payment of customs duty. Subsequently, the import of gold was brought under open general licence (OGL) by designated agencies. The designated agencies for the purpose are Minerals and Metals Trading Corporation of India (MMTC), State Bank of India (SBI), State Trading Corporation (STC), Handicrafts and Handlooms Exports Corporation (HHEC), Bank of India (BOI), Indian Overseas Bank (IOB), Canara Bank, Allahabad Bank, Bank of Nova Scotia and Standard Chartered Bank.


These measures have created ample supply of gold for export production. Those exporters availing zero duty status under replenishment scheme for exports will continue to get gold under the old schemes. What is now required is to help Indian jewellery price competitive in the international markets. The following steps will help the growth of gold jewellery exports: availability of gold for export production through the eligible agencies at international prices, permission to import of gold under OGL by all those who hallmark their jewellery (authenticate the purity of gold) and the introduction of uniform sales tax in all the States.


Table - 12: Consumption of Gold in Various Countries in 2000










Saudi Arabia









Gulf States



South Korea












                  Source: World Gold Council



FINANCEMAN ASSOCIATES acknowledges the use of various printed and electronic media for compiling the content, ideas and statistics on the gems and jewellery industry presented on this web page. We at FINANCEMAN ASSOCIATES are thankful to the industry leaders, their spokesmen, commentators in the media and experts in diamonds processing and jewellery manufacture and, specifically the Gem & Jewellery Export Promotion Council, Mumbai, for the use of published text and statistics that are in the public domain. The place of jurisdiction concerning all issues presented on this Web Page by FINANCEMAN ASSOCIATES shall be Mumbai, Maharashtra, India.



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