be only “ officialising ” of gold import and use of foreign exchange under hawala, resulting in no net loss of reserves. in fact, once gold jewellery exports pick up, consequent upon gold - import liberalisation, there will be a positive impact on the trade balance. - there is no way of getting rid of or at least drastically reducing the hawala market in foreign exchange, so harmful to the social and moral fabric of india, unless gold import is freed and the scope for gold smuggling reduced. - as pointed out by the committee on capital account convertibility, a pre - condition for further reforms in the external sector is free import of gold. - finally, while bank credit is available for import, domestic production or processing and easy acquisition or consumption of luxury goods, no such bank credit is available for gold and gold jewellery employing half a million and providing first - rate security for banks. in fact, the only way of penetrating the informal credit sector without generating non - performing assets is encouraging the flow of bank credit against gold and silver without reference to enduse. ( ii ) the cautious liberalisers avoid the subject of liberal bank credit or regulating the gold market altogether, but concentrate on possible balance of payments impact. hence, they advocate limited import through designated agencies to meet both exporters and domestic industry. ( iii ) the no - changers feel that the existing import regime is foreign exchange neutral ; and existing policy is a reluctant admission of our incapacity to change the mindset of indians who are wasting their savings on gold. there is no need to assist or develop this “ unproductive ” sector or activity. ( iv ) there is little support for a total roll - back of policy. there was, however, a suggestion in the context of an analysis of the report on capital account convertibility in the economic and political weekly ( epw, june 1997 ). this article reiterated the possible impact of liberalisation of gold import on domestic savings in an adverse way ; on diversion of productive resources into unproductive channels ; on aiding the process of tax - evasion and hoarding of incomes and assets. having expressed this, the article states, and i quote, “ a more viable policy from the point of healthy and egalitarian development was to recommend the banning of gold imports ( other than for jewellery exports and for industrial use ), and strict enforcement measures against smuggling ”. rationale for new gold policy now responses to the issues raised by me last year thus

say rs. 2 lakh without any stipulation on end - use to help peasants and penetrate the informal credit sector, ( c ) advised to devise gold acquisition plans, ( d ) permitted to lend liberally to gold jewellery business, and ( e ) allowed to draw upon international experience to deal in the gold industry. issues as you would notice, i have not gone into the details of gold banking. similarly, on gold policy and capital account convertibility, my distinguished predecessor, friend, philosopher and guide dr. tarapore, will address you later. deliberately, i have not gone into the issue of the current price situation of gold or use of gold as reserves by central banks. i feel that those issues, though of contemporary interest, are not directly relevant. i am thus, left with issues that flow from my presentation today. first : what should be the possible objectives of an ngp? and when should we launch an ngp? second : is mere liberalisation of import of gold enough of a reform? if not, what are the other measures? third : who should be the promoter / regulator for gold trade? fourth : what should be the objectives of regulating gold trade? fifth : what are the measures that are possible under the existing legal framework? what changes in legal framework are needed to achieve a globally strategic position for india in world gold economy? sixth : what should be the tax regime, since in many countries the tax regime for gold is somewhat special. seventh : how soon could the physical facilities, like quality assaying, marking, designs etc. of international standards be established? what will be the role of foreign investment and technology in this area? eighth : how should the banks equip themselves to do gold banking - immediately, with the present legal and policy frame - and soon, to exploit the opportunities under a possible ngp? ninth : and this is critical from the rbi ’ s point of view - what is expected of the rbi in the context of developing gold banking now, and under a possible ngp? let me conclude by thanking the audience for patiently listening to me and assuring the organisers that we in the rbi are eagerly looking forward to the benefit of deliberations here.