GOLD MONETIZATION SCHEME: A Complete Study

gold monetization scheme

The Indian government has come out with three new gold schemes, the combined purposes of which are to reduce India’s gold imports and bring all the gold lying idle with individuals and households in India into the economy, one such scheme is the gold monetization scheme.

India imported Rs. 2.1 lakh crore worth of gold in the financial year 2014-15, not counting jewelry. Rs 1.12 lakh crore worth of gold was imported between April and September 2015. The idea is that by reducing these whopping quantities of imports, the government can try to narrow India’s current account deficit and trade deficit (the margin by which India’s imports exceed its exports).

What is the Gold Monetization Scheme?

The gold monetization scheme is a Government of India sponsored scheme to put idle gold into the work. There is 20,000-ton gold, lying in the households of India. The government wants to recycle this gold so that import of the gold can be reduced.

In the Gold Monetization Scheme, the public can put their gold with the bank. The value of the gold rises along with the market prices. Besides this, they also get the interest on their gold. The interest is also in the form of gold. At the time of maturity, the gold itself gets heavier because of regular gold interest. The depositor can redeem the gold in the form of cash or gold. The gold kept with the bank is used for the gold lending.

Image result for gold

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The objectives of the Gold Monetization scheme are:

  1. To mobilize the gold held by households and institutions in the country
  2. To provide a fillip to the gems and jewelry sector in the country by making gold available as raw material on loan from the banks.
  3. To be able to reduce reliance on import of gold over time to meet the domestic demand.

Benefit to Customers

  1. The gold grows itself in this scheme. The weight of gold remains same forever if depositors keep it in the house. But the Gold Monetization Scheme increases the weight of the gold according to the given interest rate.
  2. Depositors need not to worry about the security of the gold.
  3. Depositors can save the expense of locker.
  4. Getting cash in place of gold is very easy.
  5. There is no tax at all. The investment, interest and maturity is tax-free. There is no capital gains tax on the gold interest.

gold monetization scheme

Benefit to Government

  1. It will reduce the country’s reliance on the import of gold to meet domestic demand.
  2. Gold Monetization Scheme would benefit the Indian gems and jewelry sector which is a major contributor to India’s exports.
  3. The mobilized gold will also supplement RBI’s gold reserves and will help in reducing the government’s borrowing cost.

Disadvantages

  1. Depositor has to part the gold for some years. He can’t see it physically till the maturity.
  2. The gold jewelry will lose its form. The gold is melted in the Gold Monetization Scheme.
  3. The impurities can reduce the weight of gold.

gold monetization scheme details

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Implementation

Government said in July, 2016 that it has netted 3.1 tonnes of idle household and temple gold under the monetization scheme since its launch in November 2015. This is much lower than 800-1,000 tonnes of annual gold import, 300 tonnes for investments, while the balance for jewelry.

Under the scheme, banks are authorized to collect gold for up to 15 years to auction them off or lend to jewelers from time to time. Depositors will earn up to 2.50 per cent interest per annum, a rate lower than savings bank deposits.

Currently, there are 46 assaying and hallmarking centres which are qualified to act as Collection and Purity Testing Centres (CPTC) for handling gold under the Gold Monetization scheme. All gold deposits under this scheme have to be made at CPTCs. Banks can also accept deposits at designated branches, especially from larger depositors.

India imports about 1,000 tonnes of gold every year and the precious metal is the second-highest component of the imports bill after crude oil. An estimated 20,000 tonnes of gold are still lying with households and temples.

gold monetization scheme banks

 

Suggestions:

  • The government should bring under its umbrella jewelers to act as collection centres and hallmarking centres with minimum investment since they already have trust of the customers and wider spread.
  • The Indian people value the gold as an investment, but more than that it is a prized possession. The government should provide high rates of interest and attractive schemes to attract people to invest their gold.

What are your thoughts about the Gold Monetization Scheme? Do you think it’s useful? Let us know in the comments below.