Question: My mother in India is looking to secure a loan from a bank to buy a house, using inherited gold as collateral. How much can she borrow based on the value of the gold, and what are the associated regulations?
Answer: During the pandemic, banks were allowed to provide loans of up to 90% of the market value of pledged gold. However, this loan-to-value ratio has now been reduced to 75%, which applies to both banks and non-banking financial firms. This cap will be relevant for loans granted for either productive uses or consumption purposes.
Despite the 75% limit, individual banks and non-banking financial companies may impose a stricter loan-to-value ratio based on their own risk evaluations. Additionally, the Reserve Bank of India plans to establish a standardized procedure for appraising gold.
Lenders must declare the reference price and implement a consistent approach to evaluate the purity of the gold and assess both gross and net weights. This valuation procedure will be uniformly applied across all branches of banks or non-banking financial entities and will be accessible on the lender’s website.
The forthcoming guidelines from the Reserve Bank of India will be shaped by prudential standards, emphasizing the risk tolerance of banks and similar institutions. These regulations will also require lenders to evaluate the borrower’s creditworthiness and cash flow requirements.
Question: Amid tariff conflicts, will India sustain its export growth? Could there also be an influx of inexpensive goods into India, potentially widening the trade deficit?
Answer: The government is currently engaged in negotiations for a bilateral trade agreement with the United States, potentially lowering tariffs on both ends. Even with zero duties on imports from the U.S., American goods are unlikely to saturate the Indian market due to their higher price points compared to Indian products. Simultaneously, the Indian Government is actively assisting exporters in identifying new markets.
The Ministry of Commerce is expediting export promotion efforts to aid exporters. Additionally, funds from banks are being offered at competitive interest rates. Trade agreements are under negotiation with the United Kingdom, the European Union, New Zealand, and Oman. Bilateral discussions are also being held with countries such as Australia, Brazil, and France to bolster export activities. To address the concern of excessive imports flooding the Indian market, an inter-ministerial task force comprising senior officials from the commerce and industry departments has been established to oversee imports of consumer goods, including electronics, chemicals, and steel from East Asian nations.
This group’s goal is to gather data on imported commodities and assess the necessity of any interventions. A comprehensive analysis will be conducted based on the collated information before any necessary actions are taken. Thus, the government is firmly committed to enhancing exports while keeping the trade deficit manageable.
Question: Is India progressing towards establishing a sustainable semiconductor ecosystem to compete globally? Without significant foreign investments, this could be a daunting task.
Answer: Taiwan has made a considerable investment into India’s semiconductor sector, and nations such as Japan and South Korea are also heavily investing. Japanese firms are introducing advanced technology to establish the groundwork for a semiconductor industry in India. According to the Japan External Trade Organisation (JETRO), Japan excels in machinery and raw materials, boasting over 30% of the global market share for semiconductor manufacturing equipment and 48% in parts, components, and materials, thereby playing a crucial role in the semiconductor supply chain. Notably, Japanese FDI in India has surged by 700% from 2021 to 2024.
South Korea aims to emulate Japan’s success and has developed world-class technologies in chip production. Leading Korean semiconductor companies are looking to invest in India now.
Additionally, venture capitalists are backing Indian semiconductor startups, which require approximately $7 million to create a chip prototype. Foreign venture capital funds, seen as strategic investors, are channeling funds into India’s fabless semiconductor ecosystem, which has a development period of eight years necessitating robust R&D capabilities. Consequently, establishing a sustainable semiconductor ecosystem in India will largely hinge on foreign investment and technology.
HP Ranina is a practicing attorney, focusing on corporate and tax law in India.