India’s Gold Monetisation Initiatives

Gold monetisation initiatives are government schemes in India which aim to mobilise the vast amounts of gold held by individuals and institutions. The goal is to enhance liquidity and promote investment in the economy. India is one of the largest consumers of gold in the world. It is estimated that households and temples hold between 25,000 and 30,000 tonnes of gold.

Historical Background

Gold as an Asset

Gold has been a traditional form of saving and investment in India. It is often viewed as a hedge against inflation and economic uncertainty. Many families pass down gold through generations, making it part of Indian culture.

Government Initiatives

The Government of India recognised the need to utilise this gold reserve. The aim is to reduce import dependency and improve the current account deficit. By tapping into domestic gold, the government seeks to boost the economy.

Key Initiatives

Gold Monetisation Scheme (GMS)

• Launch Date – November 2015
• Objectives – Mobilise gold held by households and institutions. Provide an alternative to physical gold ownership. Reduce gold imports and improve the balance of payments.
• Mechanism – Individuals can deposit gold (jewellery, coins, bars) with banks. They receive interest on the gold deposited. The gold can be melted and refined for market use.
• Interest Rates – The interest rate typically ranges from 2.5% to 3% per annum.

Sovereign Gold Bond Scheme (SGB)

• Launch Date – November 2015
• Objectives – Provide an alternative to physical gold investment. Reduce demand for physical gold and its imports.
• Mechanism – Investors can purchase bonds denominated in grams of gold. The Reserve Bank of India (RBI) issues the bonds. Investors earn interest (around 2.5% per annum) and can redeem bonds for cash equivalent to the market price of gold at maturity.
• Tenure – The bonds have a maturity period of 8 years, with an exit option after the 5th year.

Gold Coin and Bullion Scheme

• Launch Date – Introduced in 2015
• Objectives – Promote the sale of gold coins and bullion of high purity. Provide consumers with a reliable source of gold. – Mechanism
• The scheme allows the sale of gold coins and bullion through banks and authorised outlets. Coins are available in various denominations and are certified for purity.

Benefits of Gold Monetisation Initiatives

Economic Growth

Mobilising gold can lead to increased investment in productive sectors. This can stimulate economic activity and create jobs.

Reduced Import Bill

Encouraging gold deposits aims to decrease the need for gold imports. This can help improve the current account deficit.

Financial Inclusion

The schemes promote financial literacy and inclusion. They provide individuals with diverse investment options. This can empower more people to participate in the financial system.

Challenges and Criticisms

Awareness and Participation

There is low awareness among the general public about these schemes. Many people remain uninformed about the benefits of participating.

Trust Issues

Concerns regarding the safety and purity of gold deposits exist. People may hesitate to deposit their gold due to these fears.

Bureaucratic Hurdles

Complicated procedures may deter potential participants. Simplifying the process could encourage more people to engage with the initiatives.

Related Policies

Import Duty on Gold

The Government of India has imposed high import duties on gold. This is intended to curb imports and promote domestic gold monetisation.

Gold Recycling Policy

There are initiatives to encourage the recycling of gold. This aims to meet domestic demand without increasing imports.

Statistics

Gold Holdings

India holds approximately 25,000 to 30,000 tonnes of gold. This makes it one of the largest holders of gold globally.

Gold Imports

In recent years, India has imported around 800 to 900 tonnes of gold annually. This impacts the current account deficit.

Future Prospects

The success of these initiatives depends on various factors. Increasing public awareness is crucial. Simplifying processes can also attract more participants. Building trust in the financial system is essential for long-term success.