Discontinuation of Gold Monetisation Scheme

March 27, 2025

The Government of India has recently decided to discontinue the medium- and long-term components of the Gold Monetisation Scheme (GMS). This decision, effective from March 26, 2025, comes amid rising gold prices and a comprehensive review of the scheme’s performance. The Ministry of Finance stated that only short-term bank deposits will remain, subject to banks’ discretion.

Gold Monetisation Scheme

The Gold Monetisation Scheme was launched in November 2015. Its primary aim was to mobilise idle gold held by households and institutions. This initiative sought to reduce gold imports and the current account deficit. The scheme allowed individuals to deposit gold with banks, making it productive for the economy.

Components of the Scheme

The GMS consisted of three components – 1. Short-term bank deposits (1-3 years). 2. Medium-term government deposits (5-7 years). 3. Long-term government deposits (12-15 years). The minimum deposit allowed was 10 grams of gold, with no maximum limit.

Interest Rates Under the Scheme

Interest rates for short-term deposits were determined by individual banks based on market conditions. For medium- and long-term deposits, rates were set by the government in consultation with the Reserve Bank of India (RBI). Medium-term bonds offered 2.25%, while long-term bonds offered 2.5%.

Performance and Impact of the Scheme

As of November 2024, approximately 31,164 kg of gold had been mobilised under the GMS. Short-term deposits accounted for 7,509 kg, medium-term for 9,728 kg, and long-term for 13,926 kg. About 5,693 depositors participated in the scheme. The scheme aimed to convert idle gold into productive assets.

Reasons for Discontinuation

The Ministry of Finance cited evolving market conditions and the scheme’s performance as reasons for its discontinuation. The government has noted increase in gold prices, prompting a reassessment of gold-related schemes. The previous issuance of sovereign gold bonds also faced similar scrutiny.

Future of Gold Schemes in India

With the discontinuation of the GMS’s medium- and long-term components, the focus shifts to short-term bank deposits. The RBI is expected to provide detailed guidelines on the future of these deposits. The government aims to refine gold-related policies to adapt to changing economic conditions.

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