India International Bullion Exchange

Prime Minister Narendra Modi will launch India’s first bullion exchange — the India International Bullion Exchange (IIBX) — at Gujarat’s GIFT City (Gujarat International Finance Tec-City), India’s maiden International Financial Services Centre (IFSC) located between Ahmedabad and Gandhinagar.

Background –

The bullion exchange, which was announced in the 2020 Union Budget, has not only enrolled jewellers to trade on the exchange, but has also set up necessary infrastructure to store physical gold and silver.

Who can trade on the IIBX?

• Qualified jewellers will be permitted to import gold through the IIBX.
• To become qualified jewellers, entities require a minimum net worth of Rs 25 crore and 90 per cent of the average annual turnover in the last three financial years through deals in goods categorised as precious metals.
• For the first time in India, since the liberalisation of gold imports through nominated banks and agencies in the 1990s, the eligible qualified jewellers in India, as notified by International Financial Services Centres Authority (IFSCA), have been allowed to directly import gold through IIBX. This reform permits direct participation of qualified jewellers on IIBX for the purpose of importing gold.
• Apart from qualified jewellers, non-resident Indians and institutions will also be able to participate on the exchange after registering with the IFSCA. In the medium term, institutions such as Funds for Gold ETF are also expected to participate.
• A qualified jeweller based in India and not having physical presence in the IFSC may apply for a limited-purpose trading membership — where the entity can only trade on its own account and no client onboarding shall be permitted.
• The IIBX will submit a report to IFSCA on a monthly basis providing details of transactions in bullion by qualified jewellers, including details of products traded, quantity, value, quantity of gold imported etc.

Will precious metals like gold be physically transported to GIFT?

• A cumulative storage capacity for approximately 125 tonnes of gold and 1,000 tonnes of silver is planned at the GIFT City.
• Further, the Ministry of Commerce and Industry has stated that any unit in an SEZ (Special Economic Zone) which is permitted to store bullion for the purpose of issuance of bullion spot delivery contract and bullion depository receipts (BDR) for trading on IIBX, will be deemed as a unit in IFSC.
• Therefore, the vaulting facilities at all the key bullion centres in India will act as the spokes to feed the bullion for the jewellery manufacturers and exporters across the country, while the IIBX at GIFT-IFSC will serve as a trading hub.

What are the advantages of having a bullion exchange in India?

• The IIBX will be a gateway for bullion imports into India, where all bullion imports for domestic consumption shall be channelised through the exchange.
• In addition to providing a trading avenue to various participants, a bullion exchange will also offer the advantages of price discovery, transparency in disclosures, guaranteed centralised clearing and assurance of quality.
• A bullion exchange, apart from providing standardisation and transparent mechanism, will also be an important step towards financialisation of bullion-based products.
• Further, the IFSCA has ensured sourcing integrity of the bullion delivered through IIBX by mandating compliance to Organisation for Economic Cooperation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.
• This will lead to quality assurance and sourcing integrity. With the regulatory foundations in place, IFSCA intends to nurture a bullion ecosystem aimed at positioning India in the international markets, initially as a price influencer and ultimately as a price setter.

About IFSCA –

• The International Financial Services Centres Authority (IFSCA), headquartered at GIFT City, Gandhinagar Gujarat, has been established under the International Financial Services Centres Authority Act, 2019.
• It works as a unified authority for the development and regulation of financial products, financial services and financial institutions in the International Financial Services Centre (IFSC) in India.
• At present, the GIFT IFSC is the maiden international financial services centre in India.

About ‘GIFT City’ –

• It is a Central Business District being built between Ahmedabad and Gandhinagar in Gujarat
• Its main purpose is to provide high quality physical infrastructure (electricity, water, gas, district cooling, roads, telecoms and broadband), so that finance and tech firms can relocate their operations in it.
• It will have a SEZ, international education zone, integrated townships, an entertainment zone, hotels, a convention centre, and international techno park, Software Technology Parks of India (STPI) units, shopping malls, stock exchanges etc.
• Gujarat International Finance Tec-City Company Limited (GIFTCL) is responsible for developing and implementing the project. GIFTCL is a joint venture of Gujarat Urban Development Company Limited (GUDCOL) and Infrastructure Leasing & Financial Services (IL&FS).