Context

The foundation stone of the headquarters building of the International Financial Services Centers Authority (IFSCA) was recently laid by the prime minister in GIFT City in Gandhinagar.

Analysis

What is Bullion?

• Bullion is the term for high purity physical forms of gold and silver that are frequently kept as bars, ingots, or coins. 
• It is frequently kept by central banks as reserves or held by institutional investors, and it is occasionally regarded as legal tender, which is also held by the various central banks.

What is Bullion Exchange?

• A Bullion exchange is a market where buyers and sellers may trade gold, silver, and associated derivatives.
• The London Bullion Market is the primary international trading center for gold and silver. There are other bullion exchanges across the world as well.

What is IIBX?

• The Indian International Bullion Exchange (IIBX) was first announced in the 2020 Union budget to facilitate gold imports by Indian jewellers.
• It is a platform that not only enrolls jewellers to trade on the exchange but has also set up the necessary infrastructure to store physical forms of gold and silver.
• IIBX will facilitate efficient price discovery with the assurance of responsible sourcing and quality, apart from giving impetus to the financialization of gold in India.
• IFSCA is assigned with notifying the eligible qualified jewellers in India for directly importing gold through IIBX.

Significance of IIBX:

• This will allow India to gain its rightful place in the global precious metals market and provide integrity and quality to the global value chain. 
• IIBX will give a boost to the commitment of the Government of India towards enabling India to be able to influence global bullion prices as a principal consumer.

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 percent of the average annual turnover in the last three financial years through deals in goods categorized as precious metals.

How will it work?

• The idea behind setting this up is to make it possible for traders to swap commodities. 
• Trading can occur in US dollars as well because this is an international exchange. 
• One of the largest commercial centers in Asia is India, which has established itself as such. 
• International players will be pleased to utilize our vaulting services since IIBX offers competitive rates. 
• Due to the fact that this is a free trade zone, no duties will be paid.

What is GIFT City? Gujarat's Gandhinagar is home to GIFT (Gujarat International Finance Tec-City).  It consists of a multi-service Special Economic Zone (SEZ), which houses India’s first International Financial Services Centre (IFSC) and an exclusive Domestic Tariff Area (DTA). The goal of GIFT (Gujarat International Finance Tec-City) is to become a global Centre for integrated financial and technology services, serving both India and the rest of the globe.  In India's International Financial Services Centers (IFSCs), IFSCA is the only regulatory body responsible for overseeing the growth of financial products, financial services, and financial institutions.  A school, medical Centre, projected hospital, and GIFT City business club with both indoor and outdoor sports facilities make up the city's social infrastructure. It also consists of cohesive, well-thought-out residential projects that genuinely make GIFT City a "Walk to Work" community. The envisaged social infrastructure in GIFT city includes a school, medical facilities, a hospital, GIFT City business club with indoor and outdoor sports facilities with integrated well-planned residential housing projects. It will make GIFT city truly a “Walk to Work” City.

What was the status till now?

• Currently, gold is imported into India on a consignment basis by designated banks and RBI-approved organizations, which subsequently provide it to dealers and jewellers in various locations. 
• When dealing with domestic customers, banks and other organizations raise the price of the gold by adding a premium on top of the handling, storage, etc. fees they receive from the gold exporter. 
• This cost is transferred by the buyer all the way to the final consumer.

What advantages will it bring?

• Bullion is made accessible in Special Economic Zones (SEZs) in vaults designated by the International Financial Services Centers Authority through disintermediation by allowing trades over an anonymously traded exchange platform (IFSCA). 
• This indicates that IIBX's expansion is occurring across the nation's jewellery production hubs rather than only in GIFT City. 
• A competent jeweller who has obtained IIBX authorization to import gold or a jeweller who works with an IIBX member may examine the inventory and make an order.  As a result, the jewellers will be forced to timely manage their inventory.
• Additionally, it will increase price and order sequencing transparency, removing any potential for an unfair supplier, importer, or logistics agency favouritism.

What are the new RBI guidelines for importing gold?

• Banks may now allow qualified Jewellers to remit advance payments for 11 days for the import of gold through IIBX in compliance with the extant Foreign Trade Policy and regulations issued under IFSC Act.
• All payments by qualified jewellers for imports of gold through IIBX shall be made through the exchange mechanism as approved by IFSCA.

Conclusion

India needs more such initiatives for increasing its forex reserves and thus investing in its growth and development.