India's central bank has moved around a 100 tonnes, or 1 lakh kilograms of gold from the United Kingdom back to its vaults in India, and intends to move more in coming months, a TOI report claimed on Friday.

RBI faced severe criticism back in 1991 when it was forced to pledge part of its gold reserves as the country was undergoing a foreign exchange crisis. This is the first time since 1991 that India has moved such a heavy scale of gold.

This has been done for logistical reasons as well as diversity of storage, sources told TOI's Siddhartha. Domestically, gold is stored in vaults located in the RBI's old office building on Mumbai's Mint Road and in Nagpur.

“RBI started purchasing gold a few years ago and decided to undertake a review of where it wants to store it, something that is done from time to time. Since stock was building up overseas, it was decided to get some of the gold to India,” the report quoted an official as saying.

“It shows the strength of the economy and the confidence, which is in sharp contrast to the situation in 1991,” a source said.

For many central banks, the Bank of England has traditionally served as a repository, and India is no exception, with some of its gold reserves stored in London since before Independence.

The RBI held 822.1 tonnes of gold, with 413.8 tonnes stored overseas as of March end, data shows. The RBI is among the central banks that have purchased gold in recent years, having added 27.5 tonnes in the last financial year.

RBI's appetite for gold has also increased recently, with the central bank buying 1.5 times more gold in January-April 2024 than whole of 2023. This is reckoned to be a part of strategic diversification of reserves in challenging times.

 

 

How did RBI pull it off?

Given the security and logistical concerns, moving such a heavy quantity of the precious metal required months of planning and precise execution. For context, 100 tonnes of gold is nearly 1/4th of India’s stock as of March-end.

It required close coordination between the finance ministry, the RBI, and various other government departments, including local authorities.

Initially, the RBI obtained a customs duty exemption to bring the metal into the country, with the central government "foregoing revenue" on this sovereign asset. However, there was no exemption from integrated GST, which is applied to imports, since this tax is shared with the states.

Transporting the large quantities of gold required a special aircraft and comprehensive security arrangements. This move will also enable the RBI to save on some storage costs paid to the Bank of England, although these savings are not substantial.

India's gold connect

Gold has long been an emotional issue for most Indians, particularly since the Chandra Shekhar government pledged the precious metal during the 1991 balance of payments crisis. Although the RBI purchased 200 tonnes of gold from the International Monetary Fund about 15 years ago, the Indian central bank has steadily increased its gold reserves through consistent purchases over recent years.

 

Original source: The Economic Times

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