In recent months Indian banks have launched a major advertising campaign to persuade Indians of the virtues of paper gold and silver products. It looks like this campaign is bearing fruit, as Indian investors have rapidly increased their purchases of shares in gold ETFs. Traders who operate traditional businesses based on trade in physical metals feel that regulations are favouring banks and financial service agencies to their disadvantage.

The All India Gems & Jewellery Trade Federation is urging the Indian government to start taxing purchases of gold ETFs, and is even calling for the abolition of Indian gold ETFs in order to stimulate demand for physical metal. Indian citizens are well known for their fondness of physical gold and silver products. Interest in ETFs has rapidly increased and the current funds invested in them amount to US$2 trillion.

In recent years the financial industry has been luring Indian citizens with the argument that ETFs are more attractive in terms of price and taxes than physical gold and silver products such as coins, bars or jewellery. The tax on gold ETFs demanded by the All India Gems & Jewellery Trade Federation would reduce ETF companies' profit margin by approximately 1% to 3%. The Gems and Jewellery Export Promotion Council backs these demands.

The Indian government is already planning to double import duties on precious metals; more taxes will place yet more burdens on the Indian metals market. As a result, premiums on jewellery in India are rising. In contrast, in Arab countries such as Dubai the purchase of physical precious metals is not subject to tax. More and more Indian traders are travelling to Dubai and to the United Arab Emirates to purchase silver and gold.