What is the Gold Monetisation Scheme?
- On November 5, 2015, the Indian government unveiled the Gold Monetization Scheme (GMS), a programme designed to monetize the gold that is currently stored in Indian households and put it to useful use.
- The Gold Monetization Scheme makes it possible for gold depositors to receive interest payments on their metal accounts. The gold begins to earn interest as soon as it is placed in the metal account.
- A depositor who makes a short-term deposit of between one and three years will receive 2.25% interest yearly under the plan. The interest rate for medium- and long-term deposits is 2.5 per cent.
- The government also announced the launch of the Sovereign Gold Bond Scheme and the creation of the Indian Gold Coin in addition to the Gold Monetization Scheme.
Objectives of the Gold Monetisation Scheme
The Gold Monetisation Scheme (GMS) is an initiative by the Government of India to mobilise the gold held by households and institutions in the country to put this gold into productive use and, in the long run, to reduce the current account deficit by reducing the country’s reliance on gold imports to meet the domestic demand.
The following are some of the main goals of the Gold Monetization Scheme:
- mobilisation of the gold that is held by the country’s numerous households.
- to lessen gold imports to supply domestic demand.
- to provide gold loans from banks to assist and enhance the gold and jewellery sectors.
- to give depositors certificates stating the quantity and purity of gold they have placed.
Also read: Ambergris: The Floating Gold
Benefits of the Gold Monetisation Scheme
- The Gold Deposit Scheme (GDS), which had been in place since 1999, was replaced by the Gold Monetization Scheme. The programme enables gold depositors to receive interest at a rate of 2.25% per year on short-term deposits between one and three years.
- For medium- and long-term deposits, the depositors receive an interest rate of 2.5 per cent. The programme, which was introduced in 2015, guarantees the mobilisation of gold owned by various Indian families and institutions.
- The gold monetization plan’s profits are exempt from capital gains tax. Wealth and income taxes are not applied to capital gains.
- Large Indian families have a tremendous opportunity to profit from outdated jewellery kept away in safe deposit boxes and bank vaults thanks to the Gold Monetization Scheme. This method can be used by businesses, trusts, jewellers, and gold hoarders to profit from their precious metals.
- But be aware that you won’t get your jewellery back in the exact condition that you gave it to us; instead, you’ll get cash or gold coins and bars that you may use to buy things later.
Some of the key features of the Gold Monetisation Scheme
- The programme offers no maximum investment limit for short-term bank deposits (1-3 years), medium-term deposits (5-7 years), and long-term government deposits (12-15 years).
- Under this programme, a gold bar, coin, or piece of jewellery weighing no less than 30 grammes of raw gold may be deposited.
- The programme permits early withdrawal following a required lock-in period. It does, however, impose a fee for such withdrawals.
- The Gold Monetization Scheme offers an interest rate of 2.50% annually, which is higher than the rates provided by earlier gold investments.
- The programme also provides the option to redeem short-term deposits for gold or dollars at the going rate.
Also read: Bureau of Indian Standards
Characteristics of the Gold Monetisation Scheme
The following are its characteristic features.
You can deposit your gold in any manner. In gold bars, cash, or even jewellery, for example. On the other hand, gold jewellery encrusted with gems is not permitted to be deposited in this plan.
Deposit quantity flexibility
In a gold monetization strategy, 30 grammes of any purity are the required minimum deposit. No such thing as a maximum limit exists.
A tenure that is convenient for you
There are three term-deposit alternatives available under the Gold Monetization Scheme:
- 1 to 3 years is the short-term option
- 5 to 7 years in the medium-term option
- 12 to 15 years in the long-term option
Attractive interest rates
For a product that typically remains unused in homes and lockers, the precious metal can profit you anywhere between 0.5 per cent and 2.5 per cent each year, depending on the deposit duration.
Calculating interest in Gold Monetisation Scheme
The short-term bank deposit for the Gold Monetisation Scheme does not pay cash interest. You receive gold in grammes as a form of interest from it. You will receive 1 gramme on 100 grammes if the interest rate is 1% annually.
Withdrawal of the deposit
When you deposit, you can choose whether you want your returns for short-term plans to be in the form of cash or gold itself. You will get 995 fine gold coins or bars if you wish to get your refunds in actual gold.
Verification of purity
Over 330 Collection and Purity Testing Centres have been granted licences across the nation to test and certify the purity of the gold that is being deposited.
What are the setback factors of the scheme?
- Few people desire to store their gold in banks for interest rates of 2% to 3%.
- Inadequate knowledge of or comprehension of the gold monetization system.
- Indians do use their gold as security for loans, despite their apparent reluctance to part with it in exchange for interest.
- A significant portion of India’s gold reserves—nearly three-fourths—are preserved as sentimental jewellery.
- The gender aspect of gold in jewellery gives women some degree of control over inheritance and ownership.
According to the reports, urban households spent more money on the gold than their rural counterparts did. If the urban population is unaware of the scheme, how would the rural population react? It is necessary to increase awareness of the programme.
Security, potential capital gains, and liquidity are the three key reasons people hold gold, hence the investors in the programme require immediate liquidity.
Indian authorities ought to be successful in identifying and correcting the problems that led to the failure of the project.
Article written by Aseem Muhammed