Historically, when India's retail gold markets remained fragmented and unorganized, price parity was a major concern. Distance between places played key role in price differentiation in yellow metal. But with electronic exchanges rapidly taking shape and number of participants in Gold trading seen rising, the price disparity within India started wearing away.
Having faced price disparity in domestic retail gold market in the country, India is now successfully implementing uniform prices in the entire nation, with Mumbai being the most costly place to buy gold from.
In a bid to make one-country, one-price mechanism for gold pricing in India, the exchanges have been successful in quoting uniform prices across the country. The Indian Bullion Market Association (IBMA), jointly promoted by National Spot Exchange Ltd (NSEL) and bullion trade organisations across the country, had taken the task to announce a uniform benchmark price twice during the day. The difference, if any, will only be due to varying taxes levied by the different state governments.
As put by Suresh Hundia the President of Bombay Bullion Association (BBA), the gold prices quoted in India are almost uniform across the country, with only marginal changes in the local taxes. The gold prices are almost uniform across the country. Only thing is Mumbai is a bit costlier than any other place in India that is due to high local taxes, Hundia believes.
India's leading electronic spot exchange, NSEL is at the forefront of bringing uniformity in commodity prices by setting up electronic spot platforms across the country. This platform reflects uniform spot prices for gold across the country.
The mechanism is almost similar to that followed by the London Bullion Market Association, which announces the global reference price every day in the morning and evening.
India's gold retail market has been fragmented and grossly unorganized. Considering this fact, price deviation between two different locations was obvious. However, with formation of IBMA, the price uniformity became possible.
The association would approve local refineries' gold output and certify whether the metal produced can be traded on the NSEL.
India imports around 400 tonnes of gold annually, which constitutes majority part of the total consumption of the country therefore the local gold prices are pegged to international prices and to the value of the rupee against the dollar.
But the question arises, when India remains a major consumer of Gold, the demand has no say in price determination in the international market. India has simply remained a price taker as far as Gold prices are concerned.
However Hundia has different argument to comment on the issue, Five years back it was a time, when India looked at overseas prices to determine its local prices. But today the time is such that there won't be much movement in the international ticker boards till Indian exchange MCX opens in the morning. However the New York Mercantile Exchange (NYMEX) still seems to be ruling the game, he believed. According to him, India's Gold prices are determined by purely demand and supply factors.
India, which is the largest importer of gold, consumes about 25% of global mined gold output every year. However, till recently, it had no national-level physical market, in absence of which local prices was used to be determined by overseas prices.
The visibility of electronic spot exchange is still questionable, but still believing the claims made by the experts in the bullion industry in India, Gold prices are almost uniform across the country, thanks to electronic exchanges and ticker boards. But, the question still persists, how far is the reach of these exchanges and how many people actually following the prices quoted by the exchange as there are differences, even though marginal, among prices quoted by exchanges themselves.