Indian government should allow banks to use gold as part of their liquidity reserves, which would incentivise them to introduce gold-based savings products, the World Gold Council (WGC) suggested.

The joint report by industry body FICCI and WGC, made seven recommendations for an effective gold policy in India, as about 22,000 tonnes of gold is estimated to be held in Indian households.

The report also recommended driving monetisation of gold by incentivising banks, revitalizing gold deposit schemes, introduction of gold-backed investment and savings products.

"At present, financial products linked to gold have been poorly marketed. If banks were able to include gold in their reserve calculations, they would be financially incentivised to innovate, market and explain gold-based products," the report said.

India, which is the world’s second-largest consumer of the precious metal, should also consider setting up an exchange for transparent gold pricing and to streamline trade, the report suggested.

Other recommendations included setting up a bullion board to regulate trade and a spot exchange to offer uniform prices across the country; development of accredited refineries in line with international standards, including upscaling the current domestic refineries; and creating a more active marketing strategy for Indian handcrafted jewellery.

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Commenting at the launch of the policy report Somasundaram PR, managing director, India, World Gold Council said: "We believe the solution to meeting India’s enduring appetite for gold lies not in restricting the import of gold, but in making better use of the gold that is already in the country, making it a productive fungible asset class like any other financial savings.

"The need of the hour is to re-engage all stakeholders to develop a coherent long-term ‘India Gold Policy’ that results in a robust infrastructure for gold, drives standardisation and transparency, encourages gold-based investment products and supports the economic priorities of the country."