Union Budget 2013: What is in store for the gold loan sector?
The forthcoming Union budget is going to be a popular one as it will be the last budget before General Elections.
George Alexander Muthoot
The forthcoming Union Budget is going to be a popular one as it will be the last Budget before General Elections. The key challenges at present before the government include how they plan to maintain the exchange rate of Indian Rupee which will have a bearing on providing comfort to subsidies, the credibility on how to achieve the deficit target, means to improve the investment climate and reduce inflation, strategies for implementing GST and controlling non plan expenditure.
We expect that the Budget should have measures directed towards increasing the rate of savings in order to revive GDP growth, encourage financial savings by increasing the limit for tax deductions, increasing investment in Infrastructure sector, implementing GST with required constitutional amendment so as to build a transparent and corruption-free tax administration, restricting subsidies to BPL sections, attracting capital inflow where Direct investment is preferred to portfolio investment and encouraging direct investment which will eventually address the challenge of maintaining exchange rate to a certain extend.
We further expect that the Budget should also have measures aimed specific to Gold loan sector. Financial Inclusion is a national priority, and gold loans can be a useful tool in achieving this objective. Unlike other indicators of wealth, the larger part of India's private gold (about 65 percent) is held by rural India. The poorer households own gold in significant measure, as part of their savings. The measures should aim at accepting the relevance of Gold Loan NBFCs in financial inclusion given the size and reach of the sector.
It is also essential to distinguish the organized institutions in the sector from unorganized players such as Money Lenders and provide a level playing field for all the institutional agencies involved.
The status of gold loan given by NBFCs to be restored from the non-priority sector to the priority sector will allow the gold loan companies to lend up to 75 percent of the value of gold, instead of existent 60 percent. While the government has constituted a working group, led by Shri K.U.B. Rao, to study the business of gold loans, steps should be taken to allow NBFCs to open a no frills savings accounts and also address the concerns created by the regulations brought in RBI last year.