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The Gold Monetisation Scheme was proposed by the government recently with the aim to attract the tonnes of gold lying idle in Indian homes into the banking system to mobilise it effectively. The scheme proposes to pay interest to investors on the gold deposited in a gold deposit scheme in banks. This gold would be lent to jewellers by banks and be counted in their cash reserves so that lending can be increased.
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Indians love gold. 26% of the total demand for gold in the world came from India in 2014. India imports 800 to 1000 tonnes of gold every year which adds to the current account deficit. The rich and the poor prefer gold for saving and investment. Most of this gold owned by Indian households, institutions and religious trusts is lying idle. The government has proposed a Gold Monetisation Scheme so that the idle assets can be mobilized for investment. Here are the details on the draft of the scheme –
- This scheme would allow the individuals to deposit gold in their metal account and earn interest from the same. The purity and weight of gold will be determined by a specific agency that is BIS approved or bank. The interest will also be in the form of gold. On maturity, the investor can get gold or cash depending on option chosen at the time the account was opened. The interest is planned to be tax-free. The interest rate will be fixed by banks.
- Jewellers can deposit their metal stock in the metal accounts. This can be used to get loans from the banks.
- The minimum deposit amount is 30 grams and can be in form of bullion or jewellery.
- Banks would also be able to monetise gold as they will be able to lend gold to jewellers at a higher interest rate. The gold held in the banks as part of this scheme will be counted in their reserves which means they can increase funds for lending. The scheme will allow banks to sell gold to generate foreign currency. Banks can use the foreign currency to lend to exporters and importers.
- The tenure of the scheme is proposed to be a minimum of 1 year with a roll out option in multiples of one year. The metal account will be treated like a fixed deposit wherein breaking of lock-in period will be allowed on payment of certain penalty.
Merawala Gold !
The scheme aims at solving many issues. The idle gold lying in homes and institutions can be used in a better way. Banks and Jewellers can get more money using the gold. Mobilising existing gold will help satiating demand and reduce imports and therefore the current account deficit. NRIs will also get more gold in the country if they are given such incentives.
But the scheme needs to be made attractive for investors, banks and jewellers. In the past, some gold deposit plans have not done too well. Individual investors will be attracted if the scheme offers an interest rate if not more, at least similar to a savings account rate. They need to be attracted in spite of the processes of checking weight and checking purity in an approved BIS centre. They would have to show ownership proof and KYC. Sometimes showing ownership might not be easy as gold is passed from one generation to another and sometimes it is a gift. Banks on the other hand should be able to pay so much interest and at the same time be able to find people to lend it at a higher cost. They will have costs related to scheme process, risk, operational expenses and storage and distribution costs.
But the scheme needs to be made attractive for investors, banks and jewellers. In the past, some gold deposit plans have not done too well. Individual investors will be attracted if the scheme offers an interest rate if not more, at least similar to a savings account rate. They need to be attracted in spite of the processes of checking weight and checking purity in an approved BIS centre. They would have to show ownership proof and KYC. Sometimes showing ownership might not be easy as gold is passed from one generation to another and sometimes it is a gift. Banks on the other hand should be able to pay so much interest and at the same time be able to find people to lend it at a higher cost. They will have costs related to scheme process, risk, operational expenses and storage and distribution costs.
Experts feel that there needs to be more done and more incentives in the scheme for the gold to come out of the cupboards and mobilised in such a manner.
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