Gold holdings may be next target in India's war on 'black money'

NEW DELHI • The Indian government may impose curbs on domestic holdings of gold as Prime Minister Narendra Modi intensifies his fight against "black money", the NewsRise news agency reported yesterday, citing an unnamed finance ministry official.

NewsRise did not provide further details. A finance ministry spokesman declined to comment.

Gold premiums jumped to two- year highs last week as jewellers ramped up purchases on fears that the Indian government may restrict imports after withdrawing higher-denomination rupee notes from circulation in a war on black money.

Mr Modi announced on Nov 8 that all 500-rupee and 1,000-rupee notes would, in a few hours, turn into "worthless pieces of paper", wiping out over 80 per cent of the country's cash overnight.

Mr Modi has said he might not stop at the shock currency move that has led to a massive cash shortage, but has not made clear what his next step might be in his drive to uncover hidden wealth.

India is the world's second-biggest gold buyer, and it is estimated that one-third of its annual demand of up to 1,000 tonnes is paid for in black money - untaxed funds held in secret by citizens.

Panicked gold traders and jewellers have circulated messages among themselves, saying the government could ban the import of gold for domestic use from early next year to March, the Times of India reported last week.

India's ongoing wedding season - traditionally a time for gifts of gold - is fuelling the disquiet, the paper added.

The wedding season stretches from September to April, and metals consultancy GFMS says it accounts for more than half of the country's annual demand for gold.

More than two-thirds of that demand - about 800 tonnes a year - comes from the countryside, where farmers are struggling to get enough cash to buy seeds and fertilisers in the sowing season. The penetration of credit and debit cards and money apps is very low in rural India.

In domestic markets, jewellers are charging premiums of as high as 50 per cent but have not committed to buy any new gold, several jewellers told the Times.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 26, 2016, with the headline 'Gold holdings may be next target in India's war on 'black money''. Print Edition | Subscribe