The government approved two schemes to tap household gold stocks of over 20,000 tonnes and reduce imports. The gold monetisation schemes (GMS) will tap household gold stocks and the sovereign bond scheme would help reduce physical demand of gold for investment into the demat gold bonds. Both schemes will give tax-free returns to investors, while the bond scheme would also enable them to profit from a potential rise in gold prices. These are sensible schemes that will offer savers an alternative financial instrument.
The existing scheme introduced 16 years ago mobilised only 15 tonnes of gold – as the minimum deposit was 500 grams and the interest rates were a mere 0.75% for a three-year deposit. Though the government has reduced the minimum quantity of gold that a customer can bring to 30 grams, banks will have to give an attractive interest rate to attract retail investors into the scheme.
As for the government, the sovereign gold bonds, part of its market borrowing programme, could reduce its cost of borrowings. Moreover, allowing savers to trade gold bonds and use them as collateral for loans makes sense. Incentives like making the interest on gold bonds tax-free, exempting these bonds from capital gains tax and indexation benefits to long-term capital gains are welcome.