Prime Minister Narendra Modi launched the grandiose gold monetisation scheme (GMS) on November 5, 2015, with high expectations. The scheme basically aims to mobilise physical gold held in the form of jewellery, gold bars, coins by the households, temples, institutions etc to make gold work productively.
The accumulated physical gold by the banks will be converted to gold bars of 995 fineness and will be either lent as gold loans to jewellers, sold or auctioned to the Metals and Minerals Trading Corporation (MMTC).
Unfortunately, the scheme, which has completed a month, has drawn flak. It is disappointing that the scheme has attracted a paltry 400 grams of gold as deposit till November-end. A review meeting is being called on December 1 (today) to be attended by government officials, the RBI deputy governor along with the representatives from the banks to introspect on the shortcomings and to quickly come out with permanent solutions by addressing to the technical, legal and procedural glitches in the present policy.
It is estimated that 22,000 tonnes of unaccounted gold is in our system. Ironically, we still import 1000 tonnes of gold annually. The GMS thus aims at channelising the idle gold holdings to the banking system leading to households earning nominal interest on gold deposits, reducing dependency on gold imports and consequent savings in foreign exchange. The scheme has failed under all the 5 Ps – policy, publicity, process, pricing and people.
Banks want clarity on reimbursement of expenses from the government on the fee charged by the Collection and Purity Testing Centres (CPTC) and refineries which will be charging heavily for every transaction. Banks are also not clear on the Tripartite Agreement (TA) which they have to enter into with the CPTCs which will be testing and melting, and the refineries which will be storing the gold, as any mishap, fraud or loss of gold, can lead to protracted litigation.
The scheme is also silent on the quantum of penalty charged for premature closure of the deposits. The government has, however, clarified that there will be no income tax on the earnings and no capital gains on appreciation in the value of gold deposited. It has launched the policy in a hurry without doing proper due diligence.
Thoughtful media campaign of 3-6 months was required prior to the launch followed by “recall” advertisements, road shows etc since parting of gold by households, specially women, has great sentimental, emotional and psychological dimensions.
It is not easy to break these barriers. In this backdrop, bankers are not aggressively marketing the scheme and have developed cold feet, for want of clarity on policy matters.
Neither the government nor the RBI has come out with a concrete standard operating procedures (SOP) of the scheme. The people are not aware of the complete process. The public are of the understanding that they can approach their next-door banker with their gold ornaments for opening “gold deposits”. Unfortunately, this is not the position. Bankers come last in the process. The policy envisages customers to carry gold to the CPTC, approved by the BIS, and surrender their gold for testing. Once it is tested for purity, a certificate to this effect will be issued.
Hall-marking centres
The certificate is brought to the bank on the basis of which the gold deposit account will be opened. The saga does not end here. There are hardly 331 BIS approved collection centres (27 centres each in Karnataka and Gujarat, 57 in Tamil Nadu, 38 in Maharashtra etc) of which only 33 are certified as hall- marking centres.
Similarly, out of 32 refineries, only five are certified by the BIS. The launch of the product sans distribution mechanism is putting the cart before the horse. The government is now thinking of permitting around 15,000 jewellers to act as CPTCs who can have tie up with BIS approved refiners and the banks.
Moreover the scheme lacks sensitivity. The public, specially women, running to and from CPTC to the banks poses huge risk. Further, the process expects every bank to enter into a tripartite agreement with the CPTC and the refineries which is still in its nascent stage. This forces the clients to approach a specified CPTC having tie-up with their bankers which can be in far flung areas thus involving time, money and exposure to risk.
The short-term deposit between one and three years, where banks have the freedom to fix the interest rate, is expected at 0.6 per cent and also to redeem the deposit in gold upon maturity.
For medium term and long term deposits, the interest rate band is 2.25-2.50 per cent. This return is most unattractive for the kind of process that is involved and can even yield negative returns when the travel expenses to the CPTC, banks, low carat-age, deduction of “wastage charges” are all factored into.
Public are also worried whether this scheme attracts the taxman’s lens on the “gold trail” as most of the gold held by households is either from ancestors or are without bills and hence, unaccounted. There is a perception that the government may use this scheme as a means to unearth black money, fears of which have to be allayed by the finance minister.
For the success of the scheme, the government should launch extensive publicity, issue proper scheme guidelines and directions to banks on statutory and tax matters. Banks should offer attractive interest rates on the deposits and offer collection and testing facilities at designated bank branches itself without making the people to visit the CPTC.
Such sensitive and customer friendly initiatives will provide confidence, security and comfort to the depositors. Otherwise, the intent of the scheme will not be realised and the GMS will have a premature death.
(The writer is a Bengaluru-based economist)
The accumulated physical gold by the banks will be converted to gold bars of 995 fineness and will be either lent as gold loans to jewellers, sold or auctioned to the Metals and Minerals Trading Corporation (MMTC).
Unfortunately, the scheme, which has completed a month, has drawn flak. It is disappointing that the scheme has attracted a paltry 400 grams of gold as deposit till November-end. A review meeting is being called on December 1 (today) to be attended by government officials, the RBI deputy governor along with the representatives from the banks to introspect on the shortcomings and to quickly come out with permanent solutions by addressing to the technical, legal and procedural glitches in the present policy.
It is estimated that 22,000 tonnes of unaccounted gold is in our system. Ironically, we still import 1000 tonnes of gold annually. The GMS thus aims at channelising the idle gold holdings to the banking system leading to households earning nominal interest on gold deposits, reducing dependency on gold imports and consequent savings in foreign exchange. The scheme has failed under all the 5 Ps – policy, publicity, process, pricing and people.
Banks want clarity on reimbursement of expenses from the government on the fee charged by the Collection and Purity Testing Centres (CPTC) and refineries which will be charging heavily for every transaction. Banks are also not clear on the Tripartite Agreement (TA) which they have to enter into with the CPTCs which will be testing and melting, and the refineries which will be storing the gold, as any mishap, fraud or loss of gold, can lead to protracted litigation.
The scheme is also silent on the quantum of penalty charged for premature closure of the deposits. The government has, however, clarified that there will be no income tax on the earnings and no capital gains on appreciation in the value of gold deposited. It has launched the policy in a hurry without doing proper due diligence.
Thoughtful media campaign of 3-6 months was required prior to the launch followed by “recall” advertisements, road shows etc since parting of gold by households, specially women, has great sentimental, emotional and psychological dimensions.
It is not easy to break these barriers. In this backdrop, bankers are not aggressively marketing the scheme and have developed cold feet, for want of clarity on policy matters.
Neither the government nor the RBI has come out with a concrete standard operating procedures (SOP) of the scheme. The people are not aware of the complete process. The public are of the understanding that they can approach their next-door banker with their gold ornaments for opening “gold deposits”. Unfortunately, this is not the position. Bankers come last in the process. The policy envisages customers to carry gold to the CPTC, approved by the BIS, and surrender their gold for testing. Once it is tested for purity, a certificate to this effect will be issued.
Hall-marking centres
The certificate is brought to the bank on the basis of which the gold deposit account will be opened. The saga does not end here. There are hardly 331 BIS approved collection centres (27 centres each in Karnataka and Gujarat, 57 in Tamil Nadu, 38 in Maharashtra etc) of which only 33 are certified as hall- marking centres.
Similarly, out of 32 refineries, only five are certified by the BIS. The launch of the product sans distribution mechanism is putting the cart before the horse. The government is now thinking of permitting around 15,000 jewellers to act as CPTCs who can have tie up with BIS approved refiners and the banks.
Moreover the scheme lacks sensitivity. The public, specially women, running to and from CPTC to the banks poses huge risk. Further, the process expects every bank to enter into a tripartite agreement with the CPTC and the refineries which is still in its nascent stage. This forces the clients to approach a specified CPTC having tie-up with their bankers which can be in far flung areas thus involving time, money and exposure to risk.
The short-term deposit between one and three years, where banks have the freedom to fix the interest rate, is expected at 0.6 per cent and also to redeem the deposit in gold upon maturity.
For medium term and long term deposits, the interest rate band is 2.25-2.50 per cent. This return is most unattractive for the kind of process that is involved and can even yield negative returns when the travel expenses to the CPTC, banks, low carat-age, deduction of “wastage charges” are all factored into.
Public are also worried whether this scheme attracts the taxman’s lens on the “gold trail” as most of the gold held by households is either from ancestors or are without bills and hence, unaccounted. There is a perception that the government may use this scheme as a means to unearth black money, fears of which have to be allayed by the finance minister.
For the success of the scheme, the government should launch extensive publicity, issue proper scheme guidelines and directions to banks on statutory and tax matters. Banks should offer attractive interest rates on the deposits and offer collection and testing facilities at designated bank branches itself without making the people to visit the CPTC.
Such sensitive and customer friendly initiatives will provide confidence, security and comfort to the depositors. Otherwise, the intent of the scheme will not be realised and the GMS will have a premature death.
(The writer is a Bengaluru-based economist)