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NEW DELHI, March 21

THE Deputy Governor of the Reserve Bank of India (RBI), Dr Y.V. Reddy, on Thursday advocated the setting up of a Gold Exchange to develop the precious metals market and integrate it with the financial markets.

Speaking at a conference organised by the World Gold Council, Dr Reddy said, "A committee set up by the RBI has studied the feasibility of introducing futures trading in gold and this is being examined by the Forward Markets Commission.''

He said that once banks started trading among themselves with MMTC, STC and other big traders, a formal move towards setting up a gold exchange was appropriate. The existing infrastructure available with the National Stock Exchange (NSE) could even be used, suggested Dr Reddy.

Currently 13 banks are active in the import of precious metal, with five having various gold deposit schemes.

"They are exploring the possibilities of introducing `paper gold' products such as Gold Accumulation Plans'', he said.

The Deputy Governor, however, acknowledged that the various gold deposit schemes had not been as successful as had been expected.

Dr Reddy also said that there was scope for further rationalisation of policies relating to import of gold.

"Import of gold through special import licence may need a review'', he said while adding that gold imports by non-resident Indians (NRIs) could be prohibited.

"When gold is imported through NRIs, it may not be easy to track the origin or destination, hence making it vulnerable for misuse,'' he said.

Select large institutions, particularly banks could contribute effectively for efficient import of gold. On exports, Dr Reddy said special restrictions on gold jewellery export-oriented units be removed and treat them like other units.

As part of a mid-term policy for gold, Dr Reddy said that there was need to recognise the link between the domestic and international markets. Gold has been virtually insulated from the local financial market in terms of financing of gold or gold transactions by the banking sector.

"Given the inevitable integration between the global and local gold markets, there is considerable merit in following the global practice of integration of gold markets with the financial markets,'' he said.

Dr Reddy also stated that measures should be taken to ensure the quality of gold. Consumers on an average would be paying Rs 8,000 crore extra each year due to poor quality of gold. This needed to be checked, he added.

RBI rules out sale

Meanwhile, the RBI has ruled out selling gold from its reserves. He said, "At this moment our reserve management policy is passive and conservative as RBI does not trade in gold''. In the last few months, various European central banks have been selling gold.

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