Mumbai: India’s finance ministry is formulating a policy to auction gold deposited with banks under the Gold Monetisation Scheme (GMS) which will pave the way for purchase of the precious metal by jewellers. This will also mark the complete rollout of the scheme that was launched in November 2015 to trim imports and check current account deficit, reports Financial Express.
Currently, in the absence of an auction policy, stocks deposited by people under the gold monetisation scheme are lying with banks. Only when the gold stocks are sold to jewellers through auctions, will imports ease proportionately. Once the policy is announced, the gold received from people for medium and long-term deposits will be auctioned by the agencies notified by the government and the sale proceeds will be credited to the government’s account held with the Reserve Bank of India, sources said.
Also, to boost collections under the scheme — which stood at just 6.4 tonnes (worth around `1,930 crore at current price) as of February 18 - the finance ministry will step up discussions with stakeholders on how to rope in temples and trusts, which are sitting on huge piles of gold. “Temples and trusts can invest even now. There is nothing that stops them. But awareness about the scheme needs to be raised to improve more participation by temples and trusts,” said sources. Though a major chunk of the deposits so far has been by temples and trusts, their participation could improve.
Even though the scheme can’t be labelled a runaway success (despite a fall to a seven-year low, India’s consumption was as high as 675 tonnes in 2016), the mop-up of 6.4 tonnes by February 18 represents an almost seven-fold rise in one year, albeit on a small base.
The scheme offers investors annual tax-free interest of up to 0.6% for short-term gold investments (up to three years), 2.25% for the medium term (five-seven years) and 2.5% for the long term (12-15 years). The interest is denominated in gold. The central bank maintains the gold deposit accounts (denominated in gold) in the name of the designated banks, which will, in turn, hold sub-accounts of individual depositors.
The entry of temples and trusts in a big way will be a game-changer for the scheme, as, apart from huge stocks, they don’t have any particular aversion to getting their gold melted for testing purity and actual weight at a designated centre — a mandatory requirement under the scheme before gold can be deposited in a person’s account. The limited number of collection and purity testing centres (CPTCs), more so in rural areas, which account for massive stocks of household gold, has severely squeezed the scope of the scheme.
Also, the unwillingness of housewives to get jewellery melted before deposit has dented the appeal of the scheme. Analysts say the mind-set of the people regarding hoarding gold won’t change overnight. But that shouldn’t deter the government from improving the logistics side of the scheme, such as increasing the number of CPTCs, apart from launching an aggressive marketing campaign showcasing its many benefits.
Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities, said making gold monetisation scheme a success is a more challenging task, considering that Indians don’t want to part with ancestral jewellery. Logistics also need to be sorted out first, he added.
The scheme was launched in 2015 to tap the massive gold stocks lying with Indian households, together the world’s largest hoarders of gold, to trim imports and contain their debilitating impact on trade balance and current account.
The households hold a record 23,000-24,000 tonnes of the precious metal, worth at least $800 billion despite a sharp fall in international prices from their peaks in 2011, as per a recent study by the London-headquartered World Gold Council (WGC). The value of the holdings is based on (conservative) international prices, which doesn’t factor in a 10% customs duty. So it would be substantially higher in the rupee term.
Coupled with 557.7 tonnes of the central bank’s holdings, gold stocks at most of the known sources in the world’s second-largest consumer would represent around a half of its gross domestic product. This means the gold monetisation scheme has immense potential. The government is aiming at `5,000 crore from all the gold schemes—Sovereign Gold Bond (SGB), gold monetisation and Indian gold coin in 2017-18, compared with `3,809 crore (revised estimate) in 2016-17, representing just about 2% of the country’s annual consumption. The combined target under these gold schemes was cut by a half for 2017-18 from the budgeted target of `10,000 crore for 2016-17, thanks to lower-than-expected mop-up last fiscal.
