With an estimated holding of around 20,000 tonnes, Indian households and religious institutions are among the largest gold hoarders on earth sans earning any profit, as the precious yellow metal is not in the system but unaccounted, accumulated passive asset. World gold council(WGC) estimated gold worth 63 lakh crore stashed away in Indian households if bought into circulation would reduce the dependence of country on imports, which have played havoc with Indian finances and shall contribute a significant rise to GDP as the hidden gold is equivalent to half the country's current GDP.
In the quest, Govt of India unveiled Gold monetisation scheme to untap and bring the stagnant yellow metal into system for lucrative selling and lending. Announced in 2015-2016 budget speech, the gold monetisation draft guidelines does not say to enquire of the proof of purchase, sources of acquisition or past wealth tax payment. Such comfort is expected to encourage high net worth individuals (HNI's) to make this a success. Since India is a massive importer of yellow metal which leads to downfall of the Indian rupee, GMS leads a pave way to monetize country's gold to spur spending, investing and limiting the need to import more. Two significant schemes were proposed in this respect ,first is the Gold Deposit Scheme , which would enable depositors such as households , jewellers to open metal account with the banks and place their gold holdings with them. Under this scheme depositors will earn interest on their metal accounts and jewellers can take loan against their metal accounts. The other initiative is a new Sovereign Gold Bond, due to this scheme investors would be enable to trade in gold without having it to buy physically. This is an alternative to the physical gold. For its rapid acceptance draft provides a zone of relaxation to individuals and institutions by allowing them to deposit a minimum of 30gms of gold initially. Any institution holding surplus gold can get it valued from any BIS-approved hallmarking centers, open a gold savings account with banks for a minimum period of one year and earn interest in either cash or gold deposits .The interest would be paid to the customers after the metal account have achieved a life of 30 or 60 days. The proposed tenure period of the scheme is min of one year and the bait offered is interest plus promise that one can take their deposits back in the form of gold. Banks are permitted to hold the mobilized gold as part of their CRR (cash reserve ratio) and SLR (statutory liquidity ratio) requirements with RBI to hedge against any malfunction situation. Gold deposited by the customers to the banks would be sold to generate foreign currency and the mobilized gold will be converted into coins for onward lending and selling purposes.
For certain reasons Gold Monetization Scheme may be attractive, perhaps, may not prove a clincher. The contributing factors that would thwart its acceptance is the affinity of Indians for gold, they buy it for consumption and as a hedge against inflation. Also family heirlooms can hardly be enticed by such schemes. Another, yet, strong hindrance the recently passed Tiger bill �Black money ' as govt is cracking down hard on the black money may prove fatal to GMS's success. The government has got tough black money law approved by parliament for covering wealth stashed overseas by Indians. But relief is draft doesn�t mention any incremental scrutiny of purchases and acquisition this might turn the tables. The terms and conditions of the scheme seem attractive enough to entice a substantial unaccounted income in the form of yellow metal. If successful, GMS definitely going to impact domestic and international gold markets as soon as hidden gold will come out a proportional fall in the Indian imports will be seen, downgrading the international gold prices. For Indian economy to shine, GMS must glitter.