Gold Monetisation Scheme, Objectives, Features, Benefits

Explore the Gold Monetisation Scheme, an initiative by the Indian government to mobilize idle gold, earn interest, and reduce gold imports while boosting the economy.

Table of Contents

Context: The Government of India has decided to discontinue the Medium-Term and Long-Term Deposits (MLTGD) under the Gold Monetisation Scheme (GMS).

About Gold Monetisation Scheme (GMS)

The Gold Monetisation Scheme (GMS) was launched in November 2015 as a revamped version of the older Gold Deposit Scheme.

Utilizing Idle Gold – Encouraging individuals and institutions to deposit their gold in banks.
Reducing Gold Imports – Enhancing domestic gold availability to decrease dependency on imports.
Providing Interest on Gold Deposits – Offering a return on gold holdings instead of keeping them idle.
Supporting the Jewellery Industry – Allowing banks to lend gold to jewellers, increasing liquidity in the sector.

Deposit Options

The scheme had three deposit options:

Short-Term Bank Deposits (STBD): 1-3 years (Interest decided & borne by banks).
Medium-Term Government Deposits (MTGD): 5-7 years (Interest decided & borne by the government).
Long-Term Government Deposits (LTGD): 12-15 years (Interest decided & borne by the government).

Challenges Faced by Gold Monetisation Scheme (GMS)

Low Participation: Indians prefer holding physical gold over financial gold products.
Trust Issues: People are hesitant to deposit family heirlooms and jewellery.
Storage & Liquidity: Banks face difficulties in effectively utilizing collected gold.

Discontinuation of Sovereign Gold Bonds

This is the second gold-related scheme to be discontinued recently, following the government’s decision to stop issuing Sovereign Gold Bonds (SGBs).
Under the Sovereign Gold Bond Scheme, bonds were issued in denominations of 5g, 10g, 50g, and 100g for 5-7 years with interest based on the metal’s value at the time of investment.
The scheme had an annual cap of 500 grams per individual.
The government is moving away from gold-related investment schemes, likely due to rising gold prices and market conditions.

Gold Monetisation Scheme Objectives

The Gold Monetisation Scheme aims to achieve the following objectives:

Utilizing Idle Gold Resources

Encourage individuals and businesses to deposit their idle gold holdings, which are currently sitting unused in homes and businesses, and put them to productive use.

Reducing Dependency on Imported Gold

Decrease India’s reliance on imported gold by promoting the monetization of domestic gold holdings. This helps in reducing import expenses associated with gold and contributes to a more balanced current account.

Enhancing Availability of Raw Material

By mobilizing idle gold resources, the scheme aims to make gold readily available as a raw material. This availability supports the local gem and jewellery industries, ensuring a consistent supply of gold for their production needs.

Read about: Banking Ombudsman

Gold Monetisation Scheme Features

The Gold Monetisation Scheme offers several features to the general public, encouraging them to deposit their gold in banks:

Feature	Details
Interest Earning Opportunity	Individuals can earn interest on their idle gold instead of keeping it at home.
Participation of Scheduled Commercial Banks	All scheduled commercial banks, except regional rural banks, can execute this scheme as per RBI guidelines.
Authorized Gold Depository Facilities	Individuals can deposit their gold through BIS-certified collection and purity testing facilities.
Gold Savings Account	Anyone can open a Gold Savings Account at recognized banks known as Certified Purity Testing Centers (CPTCs).
Minimum Deposit Requirement	Gold must be deposited in increments of at least 30 grams, with no maximum limit.
Joint Deposits Allowed	Joint deposits are permitted with a minimum of two holders and an unlimited maximum number of holders.
Variable Interest Rates	The interest rate offered ranges from 2.25% to 2.5% depending on the duration of the deposit.
Early Withdrawal Provision	Early withdrawal is allowed, subject to an Early Withdrawal Penalty and a specific lock-in period.
Categorization by Time Period	The scheme categorizes deposits into short-term (1-3 years), medium-term (5-7 years), and long-term (12-15 years).
Redemption Options	Only long-term deposits can be redeemed for cash at maturity, while short- and medium-term deposits can be redeemed for cash or gold.
Government Benefits	Banks accept both short-term and long-term deposits to benefit the Indian government.

Gold Monetisation Scheme Benefits

The Gold Monetisation Scheme offers several benefits that can help address various economic challenges and provide advantages to depositors:

Reducing Current Account Deficit (CAD)

By encouraging individuals to deposit their gold instead of importing more, the scheme helps lower the expenses associated with gold imports, which in turn contributes to reducing the CAD.

Mitigating the Impact of Gold Imports on CAD

When combined with the import of crude oil, gold imports can significantly impact the CAD. This scheme helps alleviate the pressure on CAD by reducing the need for additional gold imports.

Curbing Speculative Buying

The scheme provides an alternative avenue for individuals to monetize their gold holdings, thereby reducing speculative buying of gold. This helps stabilize the gold market and prevents excessive price fluctuations.

Addressing Uncertainty and Inflation

During times of uncertainty, such as the effects of COVID-19, the demand for gold tends to increase. The scheme offers individuals an opportunity to earn interest on their gold, which can incentivize them to deposit their gold instead of hoarding it, thereby addressing the increased demand and potential inflationary pressures.

Earning Interest to Offset Depreciation

Gold is subject to price fluctuations and depreciation over time. By depositing gold under this scheme, individuals have the chance to earn interest, which can help offset the expense associated with the depreciation of the gold value.

Gold Monetisation Scheme UPSC

The Gold Monetisation Scheme holds significance for the UPSC (Union Public Service Commission) examination as it aligns with several key aspects of the UPSC Syllabus, making it relevant for aspirants preparing for the exam. The scheme relates to topics like the economy, international trade, and finance, which are covered under the UPSC syllabus for subjects such as Economics, General Studies, and Current Affairs. Candidates can enhance their preparation by accessing UPSC Online Coaching platforms and practising UPSC Mock Test to gain in-depth knowledge and improve their analytical skills on this topic and related subjects.