For the second time since Independence, India has decided to sell its stock of non-monetary gold and silver in the domestic market.
Non-monetary bullion is gold and silver that is not part of the reserves held by the Reserve Bank of India. In the early 1960s, the government had sold the Hyderabad Nizam's gold and silver through the central bank.
The government mints in Mumbai, Kolkata and Hyderabad are reported to have 2,100 tonnes of silver of mixed purity (from .10 to .999) and four tonnes of gold, of which 2.25 tonnes are of .995 purity and the balance of .800 purity.
The government has decided to sell three tonnes of gold in the market. The entire stock of silver will be hawked, but only 50 tonnes will be sold every month to prevent price distortions.
The Centre will sell the gold and silver through the MMTC Ltd and the Handicrafts and Handloom Export Corporation. The government has already sold 28 tonnes of silver.
According to letters the Centre wrote to MMTC and HHEC in December, copies of which Business Standard saw, the prices will be determined each day and calculated on the basis of average bullion prices of the last seven market working days published in newspapers in Kolkata, Mumbai, Delhi and Chennai.
The government will get at least Rs 1,200 crore (Rs 12 billion) from the sale of silver, assuming (as the government has) that the price of silver is Rs 8,000 a kg.
Veteran bullion consultant Madhusudan Daga said the government should sell precious metals at international rates, taking into account Customs duty and after discounting the purity. "This will prevent traders from manipulating the rates," he said.
Bullion analyst Bhargava Vaidya said, "Bullion could also be sold on the futures exchanges, as they have a sellers option and the delivery would be easy. This will ensure transparent pricing and wider participation."
Leading bullion traders said they were ready to underwrite the sales of all the government's stock of silver at international rates, taking into account Customs duty and refining charges while discounting the purity, with a bank guarantee. They were willing to purchase 100 tonnes a month, which will not disturb the market.
According to Daga, in the past, the Customs department had sold confiscated bullion. This was generally done in the last quarter of the financial year to meet the revenue target for each region.
In 2004, the demand for silver was reported to have declined sharply by around 40 to 50 per cent of the total imports of the metal. Between January and December 2004, an estimated 1,500 tonnes were imported versus 3,100 tonnes in 2003.
