Gold Monetization Scheme (GMS), Discuss.
As soon as the word gold comes to our mind it fascinates us of the ancient time era where gold jewellery was worn both by men and women. Gold is a precious metal since eternity and it is a symbol of power and prosperity. For the safety of gold there were several schemes launched by the government of India. In 1999, a scheme was introduced by government of India with the objective "to save on precious forex by utilizing the vast gold holdings lying with Indian households and various religious trusts." For the safety of gold, banks issued lockers where people could keep their jewellery but in return they have to pay for these lockers annually.
In the budget 2014, a new scheme was launched by our finance minister, Shri Arun Jaitley , the gold monetization scheme. The main objective behind this scheme is to bring out the tonnes of gold held by households in the country, to make gold available to the domestic Indian jewellery market and to make India self sufficient by supplying ample amount of gold internally and reducing the dependence of foreign market to cater to the domestic demands. For the secure and easy handling of gold this scheme requires a vast setup of infrastructure. Initially, this scheme will be launched in certain selected cities and as the infrastructure and refining facilities of gold develops the scheme will be launched in other cities.
Now let's look at how this scheme will be implemented. There will be 350 Hallmarking centres where gold purity tests will be conducted, after checking the quality of gold the customer will have to fill up the KYC forms in which the customers will give their consent to melt their gold. If the customer doesn't agree to the terms and conditions they can take their gold back at this stage. Further, if a customer agrees to all the conditions then those ornaments would be cleaned of all the dirt, corrosion. After this it goes through a process of fire assaying test in which the gold will be molten. After the purity of the ornaments is verified then they would be awarded a certificate of authenticity for further opening of gold account. The customers can take their gold back at this stage after paying a nominal fee. There is a condition given by the government that a minimum of 30 grams of gold should be deposited for a minimum of one year. If a customer is depositing 30 gms of gold for an year then in return they will get 1% of interest on that gold in the form of gold/cash which will be specified by the customer at the time of deposition. The interest gained from this scheme will not be taxable for the customers.
In the perspective of banks this scheme is profitable as the gold can be deposited as a part of their CRR/SLR deposits with the RBI. The banks can also exchange this gold for foreign currency. This scheme will bring out millions of tonnes of gold which is lying uselessly in the lockers of Indian households out in the open market and this will strengthen the Indian economy.
On the other hand, the disadvantages of this scheme are:-
- Gold ornaments have a strong sentimental attachment with their owners. In many cases the same set of jewellery has been handed down from generations and this makes the jewellery hold aesthetic value. Hence the people might not be willing to get the gold's form changed.
- This scheme can be used as a medium to convert the illegitimate earnings into legitimate investments by the corrupt people as the interest earner through the scheme isn't taxable.
- A basic fixed deposit in a bank yields 7-9% interest which when compared to the gold monetization scheme is very less as a result the common man will not be interested to invest his money in such a low return scheme.
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