The Indian gold jewellery market is still affected by under-caratage of between 10% and 15%, with widespread differences in purity, according to the World Gold Council (WGC), indicating the need for a "fully functioning, credible and rigorous hallmarking system" in the country.
In a report focusing on the Indian consumer gold market, the largest in the world, the council says Indian consumers are routinely cheated by jewellery merchants, despite the establishment of hallmarking standards by the Bureau of Indian Standards (BIS).
When a consumer in India purchases an item of jewellery and is told the gold content is worth Rs. 10,000 (£100, €142, $156), it is, on average worth Rs. 8,500 to Rs. 9,000, according to the council.
Hallmarking is not mandatory in India and consumer awareness about it is low. Moreover, hallmarked and non-hallmarked jewellery are both sold in the same outlet; and less than one-third of total jewellery is hallmarked.
"The Indian gold market would reap extensive and much-needed benefits, if it were supported by a fully functioning, credible and rigorous hallmarking system," it said.
Such a system would reduce under-caratage, enhance trust in gold as collateral, increase value of Indian jewellery for better exports and create more employment in the jewellery sector, the council added.
It estimates that gold exports could increase to at least $40bn from $8bn in 2013 and up to 2.5 million jobs could be created by 2020, if trust in the quality and purity of Indian gold is improved.
The WGC added that India's gold monetisation scheme would be more effective with the hallmarking system in place. The scheme encourages people to invest in gold-backed bonds instead of buying the actual metal.
Indian households own about 22,000 tonnes of gold and around 600 tonnes of gold are used in jewellery production every year. Gold consumption is steadily increasing in the country, having surpassed China in 2014 with a total jewellery and investment demand of 842.7 tonnes.
The council called on the Indian government to strengthen governance around hallmarking processes, drive customer awareness of hallmarking and pursue membership of the International Hallmarking Convention or develop an Asian alternative among other measures.