Assessing the scope of gold refineries in India: Evidence from survey data

Abstract

Historically, gold has been one of the major imports of India with high demand on the country's foreign exchange reserve. For solving the problem, in recent times, the Indian policymakers have thought about import substitution of refined bullion by domestically refined gold. In this paper, we assess the scope of gold refining industry in India by conducting a primary survey on practices of organized sector gold refiners across India. This novel survey collects rich information on the opinion of the Indian gold refineries about the impediments towards the growth of the industry. Using the microdata collected at the refinery level, we perform a cluster analysis concerning the opinion of the refiners on seven key statements about the problems of the industry. This is accompanied by an economic analysis on the basis of the collected data and the available secondary data. The survey finds wide variation in practices and opinion depending on the types of the firms classified on their scale of operation and location. Our survey provides evidence on how their view differs significantly from the macro view of the policy makers. The refiners agree on three factors as impediments to the growth of the refinery industry: the existing tax/tariff structure, the difficulty of availing bank loan to meet working capital demand and the absence of a well-accepted quality-certification protocol. Our findings based on the economic analysis have important supply side policy implications, viz. with the rise in gold price and implementation of certification protocol, there exists a significant scope of expansion of the gold refinery industry in short and medium term by replacing the imported bullion.