Gold stocks worth over Rs 2,000 crore, held with banks under the monetisation scheme, could soon be sold to jewellers, as the finance ministry has approved an auction policy for this purpose, sources told FE. This marks the complete rollout of the gold monetisation scheme launched by Prime Minister Narendra Modi in November 2015 to reduce imports and curb trade imbalance.
In the absence of an auction policy, stocks deposited by people under the gold monetisation scheme were lying with the banks.
According to the policy, 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 (RBI). Only when the gold stocks are sold to jewellers through auctions, imports will ease proportionately.
Also, to boost collections under the scheme — which stood at just 7-8 tonnes so far — the finance ministry will step up discussions with stakeholders on how to rope in temples and trusts in a big way that are sitting on huge piles of gold.
Though the scheme is still far from 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 7-8 tonnes so far 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 (5-7 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 that will, in turn, hold sub-accounts of individual depositors.
The limited number of collection and purity testing centres (CPTCs), more so in rural areas that account for massive stocks of household gold, has severely squeezed the scope of the scheme. Also, the unwillingness of housewives to get jewellery having emotional appeal melted so that they can be deposited has also dented the appeal of the scheme.
Analysts say the mindset 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.
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 peak in 2011, according to 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.