The following summary is from the programme “Weekly Current Affairs” aired on 6th November, 2015 on All India Radio. For those who didn’t understand the modalities of the new gold schemes that were launched recently, this discussion will make it clear. Click here for audio.
The Government has recently launched 3 new schemes to reduce the physical demand for gold
Gold Monetisation Scheme
Deposit gold and earn interest up to 2.5 per cent per annum
The minimum deposit for gold which includes bars, coins, and jewellery excluding stones and other metals should be the equivalent of 30 gm.
Sovereign Gold Bond Scheme
Buy a paper bond and earn interest of up to 2.75 per cent per year
5 gm and 10 gm coins will be launched. Special 20 gm will be launched at specific outlets
It is estimated that in India, about 20,000 tonnes of gold is lying idlein individual houses, temples, bank lockers and such other places. This amounts to 800 billion USD; and some other estimates put it at 52 lakh crore. Traditionally, gold has been held by people for the purpose of ornamentation, as an investment option, and as a hedge against inflation.
Advantages of these schemes
The purpose of these three schemes is to channelize this idle gold for productive purposes in the economy for investments and to reduce imports.
It helps the banks to maintain SLR at higher profitability.
It also provides more liquidity in the economy
Gold related statistics
India has surpassed China as the world’s biggest consumer of gold.
In the current year, India has purchased 562 tonnes of gold as against 548 tonnes by China.
Annually India has been importing roughly 1000 tonnes of gold. Even after the 80/20 rule, or hiking import duties, imports could not be curbed.
According to RBI, gold had contributed to nearly 30% of our trade deficit in the years 2009-10 and 2011-12.
As per Commerce and Industry minister, up to a third of the demand for gold is for investment.
Gold Deposit Scheme Vs Gold Monetisation Scheme
In 1999 govt introduced Gold Deposit Scheme. The Gold Monetisation Scheme, 2015 will replace the 1999 Gold Deposit Scheme.
The Gold Deposit Scheme of earlier days stipulates that a depositor has to deposit a minimum of 500 gm of gold; whereas in the Gold Monetisation Scheme it is 30 gm.
The GDS targeted the companies, firms and institutions; the GMS targets households.
The GDS has an interest rate of 1 per cent per annum; the GMS has 2.5 per cent as interest rate. (Global interest rates are mere 0.5%)
The scheme requires conversion of jewellery into bars for the purpose of gold deposit account. This could be a discouraging factor for those who are emotionally attached to jewellery.People should understand the importance of the scheme and its impact on macro-economic factors like CAD, trade deficit etc. Hence awareness and education should be spread among the people to make it more attractive.
The tax on the interest earned should not become a deterrent for the investor.
Evaluation of the quality of gold is another concern. The evaluation centres have less density at present. Moreover, their regulation will be another bigger challenge.