1. 

   Gold demand for jewellery picks up
   
   The government’s gold monetisation scheme that will allow individuals to park a minimum of 30 grams of the yellow metal with banks and earn tax-free interests will help curb rising gold imports.
   
   Here are five easy points to understand gold monetisation scheme:

2. 

   Gold imports have grown in recent months
   
   The government’s gold monetisation scheme that will allow individuals to park a minimum of 30 grams of the yellow metal with banks and earn tax-free interests will help curb rising gold imports.

3. 

   Gold demand for jewellery picks up
   
   Higher gold imports—$56.5 and $53.8 billion in FY12 and FY13, respectively—resulted in record current account deficit of 4.2% and 4.8% of GDP in these two years.

4. 

   Investment demand drops
   
   The scheme is intended to bring into circulation a part of the 20,000 tonnes of gold held by households and temple trusts. It will increase recycling of domestically held gold and reduce jewellers’ reliance on imported gold. Even if the scheme is able to mop up 200 tonnes of deposits every year, it could help reduce India’s gold import bill by R60,000 crore or over $9 billion in a year.

5. 

   Limited use of recycled gold
   
   The scheme’s success will depend on the attractiveness of interest rates offered by banks. The existing scheme introduced 16 years ago failed—it 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. Retail investors will also need a guarantee that the tax officer will not come calling on the depositor.

6. 

   Gold prices have dropped
   
   For banks, the attractiveness of the new scheme will depend on whether the deposit will count towards cash reserve ratio and statutory liquidity ration requirements. If they are allowed to do so, it could enable banks to release funds for lending in the economy.