The World Gold Council today launched a report titled ‘Bullion Trade-in India’, as part of a series of in-depth analyses on the Indian gold market. The report highlights how, with very little mining and modest levels of recycling, India is heavily reliant on bullion imports to meet its domestic demand. Indian official imports have continued to grow despite high import duty, with official imports averaging 760t since the first duty hike in 2012. The higher import duty has led to increasing in unofficial imports with the east/north-east and south states acting as main channels for gold smuggling.
Gold smuggling also has shifted away from the sea in favour of air and land routes. The last decade witnessed an increase in doré shipments due to the lower duty applicable on it. Somasundaram PR, Regional CEO, India, World Gold Council, commented; “As the second-largest global market, Indian gold demand is heavily dependent on bullion and dore’ imports. The bullion industry has developed over the last 3 decades in India with a significant addition to organised refining capacity and an LBMA accredited refinery.
Challenges remain, however, on dore’ sourcing and organised trading which act as barriers to a more active role for banks and bullion trade in global trading and price setting. High taxes on bullion continue to be a strong incentive for the grey markets that constantly undermine all reforms to make gold liquid and mainstream. There are significant opportunities to emerge as a global bullion trading hub through the international gold spot exchange (IIBX) with a thriving domestic bullion eco-system underpinned by globally recognised standards and infrastructure.
Key highlights of the report: Indian official imports
 Over the five-year period 2016-2020, imports made up 86% of India’s gold supply, while recycling accounted for 13% and mining accounted for just 1%.
ï‚· Since the first duty hike in 2012, India has imported some 6,581t of gold, averaging 730t per annum.
 Higher gold imports can have a negative impact on the country’s balance of trade and have, at times, led the government to implement measures to try to curb gold imports Gold trading volumes
ï‚· In 2020, the average daily trading volumes on futures and spot exchanges was US$69.3bn, with gold ETFs generating average trading volumes of US$3.3bn.
 India’s contribution to these was just US$1.2bn and US$3.4mn respectively. Gold Doré imports
One important change that has taken place in India’s gold market is the growth in gold doré imports. The increase in doré imports reflects the government’s accommodative stance towards gold refining.
 In the last five years, gold doré imports made up 30% of total official gold imports.
ï‚· The duty benefits also led to a massive expansion of refining capacity in India, with the number of refineries growing from three in 2012 to 32 in 2020.
ï‚· Currently, some 25-26 refineries are active, with a combined refining capacity of 1,200-1,400t. 75
 Of these, 23 refineries imported doré in 2020 and the top five refineries accounted for more than 70% of India’s doré imports.
 With lower duty on gold doré, the share of gold imports has increased from 11% in 2014 to 29% in 2020. Official import trends
ï‚· In 2020, India imported 377t of gold bars and doré from over 30 countries – 55% of the imports came from just two countries – Switzerland (44%) and the UAE (11%)
 As doré imports have grown, refineries have become far more prominent importers, achieving a 29% share of India’s official imports in 2020.
 With bullion banks like Nova Scotia exiting their precious metals business and many large bullion dealers (previously clients of the banks) setting up their own refineries, banks’ share of official imports shrunk from 40% in 2017 to 19% in 2020 as the business shifted to refineries.
ï‚· About two-thirds of imported gold is in the form of 995 cast kilobars or 100g bars. 999 purity bars account for much of the remaining one-third of imports.
ï‚· Over the last few years, 100g bars have gained in popularity, with increased demand from small dealers or manufacturers. Key Import locations
ï‚· Gold officially shipped into India comes via air into 11 cities. In addition to these cities, gold is also imported in Sri City FTWZ, located in the town of Satyavedu in the State of Andhra Pradesh.
 In 2020, 84% of imports came through airports located in North and South India, with the remaining 16% coming through airports in West and East India. Bullion banking in India Bullion banking is a catalyst for change in India’s gold market landscape. India’s gold market faces multiple challenges, such as a lack of quality assurance, the unorganised state of the market and a lack of trust in international markets. Bullion banking is one of the key pillars to address these challenges and help establish India’s position among leading global and regional markets.
ï‚· Greater access to the bullion market for banks and other financial institutions: Banks could have greater access to the bullion market, including gold spot and derivatives trading. Banks could be encouraged to pursue product innovation and attract retail participation in the bullion market. With bullion banking, insurance companies could offer
gold and gold futures products to customers
ï‚· Boosting essential policy reforms: Bullion banks can make a meaningful contribution to other gold-related reforms:
ï¾ They can boost participation in the gold spot exchange by acting as clearing and trading members, and liquidity providers
ï¾ They can boost participation in the gold monetisation scheme through increased mobilisation of gold from the public
ï¾ They can help establish the assaying infrastructure that is a prerequisite for an organised gold market
ï‚· Increased liquidity for bullion trade: The set-up of bullion banking could increase liquidity for bullion trade through:
ï¾ Inter-bank lending and borrowing in both the local and the global bullion markets
ï¾ Central bank lending bullion to commercial banks and other entities.