New Delhi: The Narendra Modi government is reconsidering its Gold Monetisation Scheme (GMS) as it believes its costs outweigh benefits, and the scheme could not achieve what it set out to do, it is learnt.
The scheme, launched in 2015, allows you to deposit your idle gold with a Reserve Bank of India (RBI)-designated bank and earn interest on it. This works like a fixed deposit. One can earn up to 2.5 per cent interest depending on the tenure chosen. Moreover, the interest earned on the gold deposits is exempt from capital gains tax, wealth tax and income tax.
The idea behind introducing the scheme, among others, was to wean away investors from buying physical gold, and invest in paper gold, as high gold imports put pressure on the current account deficit, the gap between export and import of goods and services.
India’s current account deficit in April-September of financial year 2021-22 stood at 0.2 per cent of GDP, as against a surplus of 3 per cent in the year-ago period on the back of a sharp increase in the trade deficit.
Speaking to ThePrint, a senior government official said the Department of Economic Affairs in the Ministry of Finance has been in talks with the RBI on the matter and has asked the central bank to conduct a structural review of the GMS as the costs associated with the scheme are proving to be higher than anticipated.
The official said it was observed that the benefits expected from the scheme at the time of formulation — in terms of reduction in gold imports or mobilising idle gold holdings in the country, estimated at about 23,000-24,000 tonnes — have not materialised.
“Also, it is estimated that the scheme is coming out to be much higher on the costs as compared to costs covered in government borrowing,” the official said on the condition of anonymity. “It is not so viable for the government due to inflation in the gold price.”
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‘RBI yet to respond’
According to the official, the gold deposits under the scheme have been not more than 30 tonnes so far in 2021-22, extremely low when compared to the overall gold demand in the country each year.
The World Gold Council (WGC) pegged the total gold (jewellery, coins and bars) demand in India in 2021 (January-December) at 797.3 tonnes compared to 446.4 tonnes in 2020.
Total gold imported in India in 2021 was 924.6 tonnes as compared to 349.5 tonnes in 2020, an increase of 165 per cent. The entire gold imported in India does not cater specifically to the domestic market.
“The next few years starting with 2022 will be years to watch for the effect of policy reforms, technology and industry collaboration to let gold evolve into a more transparent mainstream asset class,” a WGC report said in Jaunary.
The government official quoted above said the structural review of the scheme would include its rationale, associated high costs, and desirability of its continuation.
“The central bank is yet to respond to us,” he said.
The development comes at a time when India’s gold imports have doubled from last year, valuing the total import of the precious metal in the 10 months to January 2022 at $40.4 billion, up 94 per cent. However, in January, the imports declined by 40.5 per cent.
The Modi government has taken various steps to formalise the country’s gold business by introducing GMS, the sovereign gold bond scheme, mandatory hallmarking, and introduction of Hallmark Unique Identification number for each piece of jewellery.
(Edited by Amit Upadhyaya)
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