Gold Monetization Scheme

March 27, 2015 Gold Monetisation Scheme 2 min read
GOLD MONETISATION SCHEME – Will it be a Game-Changer?

In the Union budget 2015-16, the Finance Minister made some key announcements with regards to Gold, an asset much adored in India. The Government has proposed a Gold Monetisation Scheme with the intent of recycling the unutilized stocks of gold as well as to curb the exorbitant level of gold imports.  


Gold monetization scheme a game changer for share trader

According to the World Gold Council, approximately 22,000 tonnes of gold is lying idle in the hands of individuals across India which is neither traded nor monetized.  The basic idea of a gold monetization scheme is to allow an investor to earn an interest in exchange for his gold deposit, which may be in the form of gold jewelry or coins. An increase in the level of gold deposits with the banks would translate into freeing up of cash reserves that can be lent out for productive uses (since the banks are required to maintain reserves in the form of gold or cash. Furthermore, the banks can lend gold to jewelers in their metal account and it would negate their reliance on gold imports. Gold constitutes the second largest item of imports by India after oil and a matter of great concern for the Government. Therefore, a monetization of unused gold would reasonably help shrink the country’s trade deficit.

For an individual making a gold deposit, the benefits accrue in the form of a decent return and would also do away with any safekeeping charges for his gold holdings. On the flip side, any gold deposited in the form of jewelry would be melted and assayed which means that one would end up with gold bars instead of the original jewelry item. This might not find favor with a lot of people who are attached to their traditional family heirloom for emotional reasons.

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Although the scheme is being largely applauded by jewelers and industry persons, the implementation aspect comes with its fair share of challenges. A similar monetisation scheme was launched in 1999 but it failed miserably owing to the poor interest rates being offered as well as a minimum deposit requirement.  Hence, it must be ensured that the current scheme offers lucrative returns and targets all individuals irrespective of their level of gold holdings. The Government also needs to ensure that the taxation issue does not pose complications nor create unnecessary hassles for genuine investors intending to deposit large amounts of gold. Another issue that needs to be tackled is to appoint an agency that would verify the purity of gold deposited under the scheme.

The onus rests entirely on the Government to introduce a well-designed scheme and translate this brilliant opportunity into a success. The scheme is expected to be unveiled in a couple of months, so let’s wait and watch for the finer details to unfold.

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