India's Digital Gold Sector Eyes Formal Regulation as Government Shows Openness

India's digital gold sector could eventually see formal regulation, with the Centre showing openness to creating an oversight framework for the industry. The issue of digital gold was discussed at a recent meeting between fintech startup founders and senior government officials, three people aware of the matter told ET.

“We impressed upon top finance ministry officials the need to regulate the space, given the massive growth seen in digital gold over the last 18 months. The officials were aware of our concerns and the conversations were encouraging,” said a fintech industry representative who attended the meeting.

The country's digital gold sector has operated in an unregulated zone for years. While this has started drawing the government's attention, regulation could still take time, given the nature of the product and the question of who should oversee it, said one of the people cited earlier.

“Currently, there is no legislation that provides a framework for digital gold. The government needs to step in to create a legal structure within which regulators can frame rules,” said Gaurav Mathur, managing director of Safegold, a digital gold investment platform.

Shweta Rajpal Kohli, who heads industry advocacy group Startup Policy Forum, also noted that the digital gold industry is in search of a “parent”. “There is considerable misunderstanding around the product among policymakers, which needs to be addressed to help the space get regulated,” she said.

People involved in the deliberations said discussions are ongoing about whether the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (Sebi) will regulate this sector. Industry representatives have also told the government that efforts are underway to form a self-regulatory organisation comprising leading players. The aim is to introduce industry standards and ensure fair practices, they said.

ET has learnt that startups such as Gullak, Jar, Safegold and MMTC-PAMP, along with Google Pay and PhonePe, are looking to come together to form the Digital Precious Metal Council of India. The proposed body would work towards establishing uniform standards and fair practices across the sector.

“The idea behind forming the industry body is to engage constructively with policymakers, build fair practice codes and create uniform standards for the industry,” said Dilip Jain, cofounder of Gullak. The Bengaluru-based startup facilitates savings through digital gold. Jain added that the broader target is to place this asset class within the broader framework of gold monetisation and consumer protection.

According to industry estimates, around Rs 3,000 crore flows into digital gold investments every month. Total assets under management are estimated at Rs 15,000 crore to Rs 20,000 crore, with about 15 tonnes of gold held in vaults against these investments.

“Earlier, government officials believed regulation would be necessary only if the industry reached significant scale. Now that the sector has grown substantially, that perception has changed,” said Mathur of Safegold.

Even as the sector has existed for years, regulators have recently flagged it as being outside their purview. In November, Sebi cautioned investors against conflating regulated gold exchange traded funds and other gold instruments with digital gold. “Investors are advised that none of the investor protection mechanisms under the securities market framework apply to such digital gold and e-gold products,” Sebi said.

Platforms such as Jar, Gullak, PhonePe and Google Pay have emerged as major distributors of digital gold. While Jar and Gullak are unregulated entities, PhonePe and Google Pay operate as third-party UPI apps under the purview of NPCI, with PhonePe itself being a regulated payment aggregator.

Industry insiders said they need to assure regulators that robust audit mechanisms are in place and that digital gold is backed by physical gold stored in vaults. “An industry association is the first step towards setting standards. Eventually, regulators will step in as well,” Jain said.