The Gold Montetization Scheme 2015

Gold Schemes
Gold Schemes

The Gold Monetization Schemes announced in the Union budget 2015-16 were launched by the Prime Minister on November 05, 2015. The three schemes launched under this program aim to get back the unutilized gold of households and individuals into the Indian economy.  The long-term objective is to reduce the country’s reliance on the import of gold to meet domestic demand, thus improving India’s current account deficit.

Gold Monetization Scheme:

As the name suggests, the Gold Monetization Scheme aims to encourage people to earn interest on their metal accounts, by keeping their gold safe in the custody of a bank.

So, what actually happens is:

  1. If you are a customer and take your gold to a bank, then the metal will first be tested for quantity and quality. Once the purity is determined, the exact amount of gold will be credited to your metal account and you will be paid interest on the same. The bank in turn, will lend this physical gold to a jeweller and charge an interest slightly above the one offered to you.
  2. Testing will be done at those centres which will meet the criteria laid down by Bureau of Indian standards (BIS).
  3. At the time of maturity, the compounded interest will be added to your initial balance in the metal account. Example: If you had deposited 100gms of gold, and were paid 1% interest on it, then at the end of one year, you will have a metal balance of 101 grams.
  4. The minimum tenure of deposit will be one year with the min. weight being 30 grams, to encourage small depositors.
  5. The ROI has been fixed at 2.25% to 2.50%.
  6. Gold can be offered in any form: bullion or jewellery.
  7. At the time of redemption too, you will have the option of taking back gold or cash but, you will have to state your choice at the time of deposit.
  • Sovereign Gold Bond Scheme:

The second scheme is the Sovereign Gold Bond Scheme under which people who buy gold for investment purposes will be encouraged to invest in this gold bond instead of buying the physical metal.

This is how you can do that:

  1. In this gold scheme, as an investor you can invest your money in gold bonds, the price of which will be linked to the price of gold in the actual market.
  2. The bonds will be issued by the Reserve Bank of India on behalf of the Government of India.
  3. The bonds can be used as collateral against loans and can also be sold or traded on stocks exchanges.
  4. They will be available both in paper and demat format.
  5. Returns from these bonds will be based on the ongoing market price of gold at the time of redemption.
  6. The tenure of the bond will be 8 years, with an exit option available in the 5th, 6th and 7th
  7. The bonds will be issued on payment of rupees and the min. quantity that can be purchased is 2 grams with an upper limit of 500 grams.

Gold Coin and Bullion Scheme (NATIONAL COIN):

Under the Gold Coin and Bullion Scheme, the government will issue gold coins, the first ever national coin, which will have the Ashok Chakra engraved on them. The coins will initially be available in weights of 5 and 10 grams to be followed by 20 gram bars, later on.

To start with, government will roll out

  • 15,000 coins of 5 gram
  • 20,000 coins of 10 grams
  • 3,750 bars of 20 grams

The coins will have advanced anti-counterfeit features and tamper proof packaging that will aid easy re-cycling.

What do you think are the benefits of these Gold Schemes:

  1. The main benefit of all the three gold schemes is the availability of alternate routes of investment, demand for actual gold will drop significantly and hence, there will no need to import gold in the long run.
  2. Once the gold imports drop, export deficit and current account deficit will also decrease.
  3. The mobilized gold will also supplement RBI’s gold reserves and will help in reducing the government’s borrowing cost.
  4. The risk of gold price changes will be borne by a Gold Reserve Fund (GRF) that is being created. The benefit to the government will be in terms of reduction in the borrowing cost which it will transfer to the GRF.

Challeges ahead:

  1. Mobilizing gold out of Indian household will not be an easy task, especially if it is in jewellery form. Under the GMS, depositor has to declare at the time of deposit, the form in which he/she would like to redeem his/her deposit and, even if a person choses gold it will be in the form of bars, and not the same jewellery.
  2. The second challenge is that this scheme might even have a counter effect where people might be encouraged to import cheaper gold from outside and deposit it in the banks to earn attractive interest, but the chances are bleak.

To conclude, the gold monetization scheme is definitely a good initiative by the finance ministry under the Government of India to mobilize the gold lying idle in households, trusts and various institutions and put it to productive use, but the success depends on people’s participation and the way the scheme progresses. Let’s see how our people welcome this scheme.