Gold Monetization Scheme (GMS), Discuss.
A stark dichotomy has appeared in the Indian economic strategies and the results on the ground. The scope for revival of investment is meagre in this scenario and inflation rate doesn�t seem to drop down too much even in this fiscal year. Pondering over the situation and not surviving solely on the mercy of fluctuating oil prices, the Central Government has come out with the �Gold Monetisation Scheme� to mobilise the stagnant and unproductive Gold kept with institutions and households. Monetisation means conversion of an object into money and hence as the name suggests, the scheme aims to convert the yellow metal into money and help money circulation in the market. The Gold deposited under this scheme shall be lent to the jewellers or banks or even re-casted into the form of bars for circulation in the market. The depositor can get the equivalent amount of gold or cash depending upon his choice at the time of maturity.
India consumes 800-1000 tons of gold per year that amounts to the second biggest burden on total imports of the country. The import of gold puts huge pressure on the foreign reserve and weakens Indian rupee and also widens the trade deficit. According to the government data, during 2014-15. India's Gold imports spiked 19.5 per cent to $34.32 billion against $28.7 billion in 2013-14. The country's Gold imports in March doubled to touch $4.98 billion as jewelers stocked the yellow metal to meet the demand from consumers owing to �Akshaya Tritiya� and wedding season. This is just an example that depicts a spurt in gold demand owing to festivals and stocking of the yellow metal. On December, 2014 the World Gold Council(WGC) and Federation of Indian Chambers of Commerce and Industry (FICCI) released a report that strongly recommended a Gold policy for India.This will not only help reduce the inflation rate but will also reduce the gold import. The reduction in the import of gold will provide a much needed check on burgeoning trade deficit.
Government has decided to introduce this scheme with very simple and uncomplicated norms to keep the depositors at ease and maximise the participation. Minimum deposition of the gold should be 30 grams for a minimum tenure of an year. The deposit plans will be of fixed deposit and the depositor can withdraw his asset in the form of gold or equivalent cash in rupees as per his choice he made at the time of deposition. Withdrawal must be done after at least an year or in multiples of it. Not only this, but the consumer can get the return in the form of Gold bars as well. The government has made a provision to issue �Indian gold coin� with Ashok chakra on its face for the depositors who are interested. This is sought to be an intelligent move as it would not only be inheritable national heritage but also allow the government to use the ornaments or the gold for lending it to the jewellers or recasting it as per need. Banks are also allowed to melt the yellow metal and mobilise it for onward sale to their customers or jewellers. Government has also provided some relief to the bank by allowing them to deposit the mobilised gold to the RBI as their CLR/SLR requirement and also allowed them to decide the rate of interest on the scheme.
Howsoever, simple and lucid the policy might appear but for it to be a success, strategies will be complicated. Considering the emotional attachments of the people with the yellow metal makes it difficult to be mobilised. In India, Gold is kept as hereditary blessings and goes on from generations, hence its tough pursuing depositors to let them be re-casted. Even if they do agree, proof of ownership will be an issue. To lure high number of depositors, the interest rate must be good enough. Already existing rate of 1% has been a failure and providing more than 3-4 % will not be acceptable from the banks perspective. The main reason and obvious ones are the high rate of interest and charges to be paid by the banks for Refining, Assaying, and distributions of the metals. But the decision of exempting the taxes on the interest earned from the deposit will certainly lure some counts even at low rates.
The scheme in an overview seems to be a much needed reform introduced by the government and a good implementation of this may prove to be fruitful. In the upcoming signs of Global depression as indicated by RBI many such scheme and quick decisions accompanied by perfect strategies might save India from tragic results. After all the more you sweat in peace, the less you bleed in war and this is exclusive when it comes to modern day�s economic warfront.
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