Christopher Columbus had said, ‘Gold is a treasure, and he who possesses it does all he wishes to in this world, and succeeds in helping souls to paradise’. However, for Indians, gold is more than just a treasure. For ages, it has been holding held a significant place in our lives. It has various references in Indian mythology. Many ancient kingdoms of India had adopted gold as a medium of exchange. In fact, at one stage in history, India had been a storehouse of world’s gold. That’s why it had earned the title of ‘Golden Sparrow’. Even today, Gold is an indispensable part of our lives. It is one of the main and sometimes, the only means of saving in rural India. Apart from investment purpose, Indians also buy gold for other reasons namely, for occasions like marriage, festivals, for ornamental purposes and for offering to deities, etc. In fact, the Indian Hindu calendar even has auspicious days to buy gold like Dhanteras. It is also considered as a symbol of status in our society. All this has helped evolve a great avidity for gold among Indians.
Over 20,000 tonnes of stocks of gold in India are estimated to be lying idle with the Indian households. Mostly, people keep their gold ornaments in safe deposits. Gold Monetization Scheme (GMS), as the name itself suggests, aims at monetizing this idle gold and facilitate the gold depositors to earn interest on their gold. This scheme has replaced the Gold Deposit and Gold Metal Loan Schemes.
A special gold savings account will be provided to each depositor in which he will deposit the gold and earn interest over it. Before accepting the deposit, the specified agency or bank will determine the purity of gold. Collection and Purity Testing Centres have also been established for this purpose. Exact quantity of gold will be credited in the metal account. Gold may be deposited in the form of jewelry, coins or bars. The interest will be paid on the basis of gold weight and also the appreciation of the market value. At the time of making such deposit, the depositor has the option to get back the gold either in the equivalent of 995 fineness gold or Indian rupees. The gold deposits will be securely kept by the bank. They will be accepted under three schemes:
- Short Term, for period of 1-3 years
- Bank Deposit as well as Medium, for a period 5-7 years; and
- Long Term Government Deposit Schemes, for a period of 12-15 years.
The bank will further lend the deposited gold to jewelers at an interest rate slightly higher than the interest paid to the depositor. It may also sell or lend the gold accepted under the short-term bank deposit to MMTC for minting India Gold Coins. Taxes such as capital gains tax, wealth tax and income tax won’t be charged on the earnings appreciation in the value of gold deposited, or on the interest.
At the time of launching the scheme, the Government was highly optimistic about its success. Unfortunately, the scheme hasn’t really taken off till now. It has managed to mobilize only 3.7 tonnes of gold. The critics cite, inter alia, the following main reasons for its failure:
- Firstly, as discussed already, gold has great sentimental value for Indians because of which most of them would be unwilling to be part with their ornaments and other gold possessions which they might have been in their families for generations.
- Secondly, gold may not always be bought with accounted money. Such gold would never be deposited because of obvious reasons.
- Thirdly, there is lack of public awareness. Moreover, before launching the scheme, the Government did not make much effort to find out about the gold consumption habits of people of different regions across the country.
- Fourthly, ‘under-carating’ is also a big deterrent. In India, jewellery and other gold products are less pure than what they should be. This could be a major factor holding back people from depositing their gold items.
- Fifthly, the Collection and Purity Testing Centres are limited in number. Presently, there are only 54 such centres in 30 cities.
- Lastly, the provisions relating to taxation of capital gains and income are ambiguous.
For meeting domestic consumption, India largely depends on imports. In the last financial year, gold imports constituted almost 1.7% of gross domestic product (GDP) and contributed significantly to the current account deficit of 1.4% of GDP. The Gold Monetization Scheme can go a long way in helping the country cut its gold imports and become self-sufficient in gold reserves. It can provide a major boost to the economy. But, to make this scheme a success, the factors which halts its success will have to be taken care of.
While nothing much can be done about the mentality and attitudes of the people as they cannot be changed overnight or even in a matter of few months or years, awareness campaigns must nevertheless be organized. According to an independent researcher Anant, who is also the RBI Chair Professor of Economics at IIM Bangalore, ‘it is necessary to undertake household-level surveys to determine the attitude of households towards gold in different parts of India’. Steps must also be taken to make the scheme more user-friendly. The confusion relating to taxation provisions must be cleared out at the earliest. Reputed jewelers can also be assigned the task of determining the purity of gold items. This will help in making the scheme more market-friendly. Research must be undertaken to find out additional ways to make the scheme more lucrative.
Definitely, the Gold Monetization Scheme has the potential to perform better than the previous schemes though it will take some time to gain traction. We will have to be patient to see whether it helps India, the Golden Sparrow, regain its sheen or not.