Gold monetisation, a long way to go

The draft gold monetisation scheme released by the Ministry of Finance last week follows from the Finance Minister’s Budget announcement. It offers a framework to monetise this idle asset, some 22,000 tonnes of which are believed to be held by households and religious trusts. This is not the first such attempt by the state. The Gold Savings Account envisaged by the draft seeks to replace the 1999 Gold Deposit Scheme. Traders would be looking eagerly at the Gold Loan Account outlined by the draft, which would replace the Gold Metal Loan scheme of 1998, originally meant for exporters. In a recent study, Ficci and the World Gold Council found that the 1999 Gold Deposit Scheme failed because a few banks came forward to offer them, while others made it unattractive to individuals by setting a high minimum deposit of 500 gm to 1 kg of gold. It also did not help that banks had to take upon themselves the risk of assaying and storing the gold.

The draft has taken care to make the Gold Savings Account more attractive to bankers as well as individuals. It has cut the minimum deposit to 30 gm, and proposed that banks could use the gold to meet their CRR and SLR requirements. Further, banks have been given the latitude to sell the gold to generate forex, convert it into coins for sale, lend to jewellers, and buy and sell it on commodity exchanges. Instead of banks, the assaying would now be done by the 350 hallmarking centres across India. For a fee, storage would be done by the 32 refiners across the country at their warehouses. For depositors, the one-year term with room to break the lock-in period, should add to the scheme’s allure, besides the proposed tax exemptions.

Some key questions, however, remain unanswered. A section of bankers have demanded subvention, saying the scheme wouldn’t meet their costs. Also, the 350 hallmarking centres and 32 refiners are too few. A worry for individuals would be whether participation would invite the attention of taxmen. Application of capital gains tax on conversion of gold into deposits needs clarity. Others fret about being asked for ownership proof of heirloom gold. Gold import duty is currently at 10 per cent, and impacts prices. The scheme can hope to lower prices only if it becomes a credible source of import substitution. And for that to happen, the concerns of all stakeholders have to be addressed. Otherwise, it risks meeting the fate of the 1999 scheme, which is believed to have drawn only 15 tonnes of gold in 16 years.