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Gold Monetization Scheme (GMS), Discuss.

There were days when elders use to guide their younger ones for sailing well in turbulent times, and amongst that a common and probably most effective suggestion was to keep gold for future. Time has moved and so have we, looking for different mechanisms to earn money for betterment of our future.

In this scenario Gold Monetization Scheme can be of some interest to those who have willingness to invest their gold in country�s economy. Let us then explore the pros and cons of scheme in light of Indian requirement of gold.

Indians since ages are known for their love for gold and gold storing habit, but it has an impact on the economy as well, because more import of gold means more burden on Indian economy and answer to this comes in form of GMS .The scheme will help in mobilizing gold held by households and institutions like temples and financial institutions in the country. It will help gems and jewellery sector by making gold available as raw material on loan from banks and will help to meet reliance on import of gold over time to meet domestic demand.

Ornaments made are generally of 22 carat or below 22 carat , however in case of its conversion into bars which is of 24 carat , a significant quantity of gold shall get reduced which in most cases may not give the investor expected returns.

It�s a time consuming process, approx. 45 min at preliminary stage of check at Purity testing center and further 3-4 hrs of fire essay test and then the time that will be taken in the bank premises. As per proposed scheme, minimum quantity to be invested is of 30 gms and the interest received will be valued in gold, i.e. if one invests 30 gms of gold and gets 1 percent interest he will be credited with 31 gms of gold, and if we look over the market rates they show up for atleast 10 gms meaning thereby for a significant return the investor might have to wait for a considerable time for growth of its investment up to 40 gms, else he will have to take return in form of cash, but the option is to be decided beforehand by the investor for getting returns in terms of gold or cash, i.e. at the time of deposit thereby reducing flexibility for investors .It is also worth mentioning that minimum expenditure to be made by the investor for the process would at minimum range from Rs. 900 to Rs.1500 approx. including various activities like Melting charges, testing or fire assaying charges stone removing charges and melting losses.

Utilization of deposited gold is proposed to be in areas of CRR/SLR maintained by banks, generation of foreign currency which may further be used in onward lending to exporters and importers, conversion into gold coins for sale to customers, in domestic commodity exchanges and lending to jewellers. In such cases risk assessment should be made beforehand that what will be the risk return trade off for the investor if gold rates in international market goes down or underlying currency rates fluctuates unprecedently, and what will be monetary provisions for banks if at time of crisis for CRR and SLR, if bank customers start withdrawing gold investment from the bank. Similarly on the other side of the coin banks can also arrange gold from international market and lend it to jewellers for money making, and if it would be more profitable then the soul purpose of the scheme will be defeated.

However, if the scheme gets good response from the Indian citizens, it will definitely have a significant impact on improving the Indian Balance of Payments as Gold import constitutes to the order of 10% of total imports .Now the onus lies on the ability to weigh the fact that- �how much better it is to get wisdom than gold� is what the people and government of India have to analyse for betterment of India.

Akarsh Misra

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