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Gold Monetization Scheme (GMS), Discuss.

Seeking to mobilize idle gold worth up to Rs 60 lakh crore held by households and institutions, government proposed a new scheme offering tax-free interest on depositing the yellow metal with banks.
The draft gold monetization scheme also provides for incentives to the banks, while individuals and institutions can deposit as low as 30 gms of gold, while the interest earned on it would be exempt from income tax as well as capital gains tax.
The stock of gold in India that is held by people of the country that is 'neither traded nor monetized' is estimated to be over 20,000 tonnes, which would be worth about Rs 60 lakh crore at the current market price.
India is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of the metal each year.
As per the draft guidelines, a person or institution holding surplus gold can get it valued from BIS-approved hallmarking centers, open a Gold savings Account in banks for a minimum period of one year and earn interest in either cash or gold units.
The scheme, which is proposed to be initially introduced only in select cities.
"The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold."
The proposed scheme is aimed at monetizing idle gold held by households and institutions provide a fillip to the gems and jewellery sector and reduce reliance on import of the metal over time to meet the domestic demand.
"The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold will be valued in gold.
It added, as an example, that if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms.
With regard to redemption, the guidelines said that customers will have the option of getting it back either in cash or in gold which will have to be exercised at the time of making deposit.
The tenure of the scheme has been proposed at a minimum 1 year and with a roll out option in multiples of one year, it said, adding that it would be like a fixed deposit, breaking of lock-in period will be allowed.
"To incentivize banks, it is proposed that they may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination," it said.
Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are mandatory requirement which banks have to follow as per RBI directive.

Elaborating other benefits of the scheme, the guidelines said, banks may sell the gold to generate foreign currency. The foreign currency thus generated can then be used for onward lending to exporters or importers.
Bank may convert mobilized gold into coins for onward sale to their customers and can be used for lending to jewelers, it said.
The government is also planning to commence work on developing an Indian Gold Coin, which will carry the Ashok Chakra on its face.
While there is a mention about "mobilize the gold held by households and institutions in the country", the real impact and benefit of this measure in terms of providing a major boost to the Indian economy by release of the idle funds locked in these gold assets and its Gross Domestic Product (GDP) multiplier effect has not been highlighted. Further, with India presently importing over 850 � 950 tons, mobilization under this Scheme will also enable in bringing down gold imports significantly over a period of time, which will also provide a major relief to the Current Account Deficit being faced in the balance of payments in foreign exchange by the Country.
The present draft of the Scheme does not bring out this objective and intent clearly and forcefully and as such unless this is redrafted and re-positioned in a proper manner, the Scheme�s objectives and ultimately the Scheme itself may get diluted.
Ultimately, scheme of gold is to boost the Indian economy using rest of the gold of India and getting the foreign currencies.

Kumar B