The government needs to revisit the proposed gold monetisation scheme as it is unlikely to succeed due to the stringent conditions in it, senior Congress leader and parliamentary panel on finance chairman Veerappa Moily said on Wednesday.
Moily said the panel would examine the scheme, as industry players have submitted a representation before it raising certain doubts about it. So a detailed report would be placed before Parliament on the need to have a proper policy on gold, factoring in the bullion industry’s views, he added.
“This scheme has to be re-examined and revisited. This is not my reservation alone but many other people in the industry have (also) expressed that it may not take off. There is no point coming out with a scheme which will not take off,” Moily said at a conference on gold.
The finance ministry released the draft gold monetisation scheme in May, which was aimed at bringing in more household stocks of gold to the financial system on a sustainable basis and curb the debilitating impact of its imports on trade balance. Gold stocks with Indian households have been estimated at over 22,000 tonne by the World Gold Council (WGC) and the country usually consumes around 900-1,000 tonne a year.
To make the scheme attractive to households, the draft says minimum deposit by a person can be as low as 30 gram and the interest earned on the gold deposit will likely be exempt from income tax, wealth tax, and capital gains tax. The interest, to be decided by banks, will also be valued in gold, and the customer will have the option of redemption either in cash or in gold. The tenure of the deposit will be minimum one year and with a roll out in multiples of one year. Analysts say the interest rate could be 2-3% a year.
In 1999 too, the government had started a policy to monetise household gold, but it failed, mainly due to the low interest rate and very high minimum deposit norm by an individual (500 gm).
Moily said that the government should take steps to make the scheme “simple and easy to comprehend for the public at large”. He suggested that gold exchanges be set up to improve price transparency and assess gold supply and demand.
However, World Gold Council managing director (India) Somasundaram PR said, “It is good to see that the Parliament panel chief has captured these concerns. In my opinion, the scheme has been well framed.”
“It will have to probably change as we go forward. It has to be integral and long-term part of Indian gold market, otherwise recycling of gold will always remain unorganised,” he said.
MCX joint managing director Parveen Singhal said that gold futures market can play an important role in executing the proposed gold monetisation scheme. He asked the government to reconsider the commodity transaction tax of 0.01% on gold to cut costs. He said one of the reasons that could discourage people from depositing gold is low interest rate, say 1-2% a year. Moreover, since the scheme requires gold, meant for deposits, to be melted, many holding family-inherited jewellery may not opt for it.