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Mobilizing and Monetising the YELLOW GOLD

The announcement of the Gold Monetization Scheme (GMS) in the Union Budget of 2015, and this scheme is started with an intent to cover multiple objectives  like to get the Indian private holdings of gold into the circulation and to control the dependency on the gold imports on account of the improvement of the domestic recycling, the gold owner has an opportunity of returns free them from the tensions of storage, maintenance and the risk of the security, and also on the other hand the jewellery sector will get a boost by enabling banks to lend gold. Under this scheme the gold in the household, trusts, temples and so also the privately held large stocks of gold will have an opportunity to deposit their gold with the banks and thereby earn an interest and the banks in turn have an option to deposit the same with the RBI or lend this to the jewelers to earn some interest.

There is ample improvement in the scheme if compared to the previous efforts where in the year of 1999 when there were very poor incentives for the investor as such, even although the scheme qualified for the tax exemptions like the income tax, wealth tax and the capital gains tax and on the other hand the interest rates were too low 0.75% for the locking period of 3 years and 1% for the locking period of 4 to 5 years and the minimum ticket size for deposit was 500 gms. The large ticket size and the long locking period was hardly an attractive package amongst the householders making the scheme a damp squib with poor gold deposit accretion then. All this has been taken into the account and the locking period has been relaxed and now is just one year and the minimum ticket size is 30 gms which would definitely be of alluring the masses, and as such the GMS not only attracts the wide spectrum of the population but so also has incentive for the banks too as the banks are to hold the gold deposits as a part of CRR/SLR  requirements, and so also the banks will partner with the purity testing centers and the refiners to outsource accessing and storing of the gold, thereby enabling the cost cutting for the banks.

The interest to be paid by the banks to the depositors needs to be worked out which should be attractive as well as workable and other attractions could be certain innovative schemes to attract the clients for the gold deposits in the gold accounts, where they can trade gold, with some gold structured products and so also the interest bearing gold saving accounts, if the clients permit the gold can be recycled into the gold bars and the banks can deposit the bars with the RBI. The lowering of the gold import duty would make the GMS a huge success and thereby reduce the unauthorized imports of the gold and the gold blocked in house hold, trusts and other private authorities would break free and come into the economic cycle from the blocked economy. Say if the gold 500 tonnes of gold is monetized in the next few years than it would help reduce the gold import bill by at least 10% or so that is $15 billion or Rs 90,000 crores annually. The success of GMS will help in increasing the income of many households which was unthinkable earlier. A pleasant surprise from the yellow gold.