GOLD MONETIZATION SCHEME

GOLD MONETIZATION SCHEME

Finance Minister, Arun Jaitley during his budget speech stated, “India is
one of the largest consumers of gold in the world and imports as much as
800-1000 tonnes of gold each year. Though stocks of gold in India are
estimated to be over 20,000 tonnes, mostly this gold is neither traded,
nor monetized”.

In order to bring into circulation a part of the 20,000 tonnes of gold held
by households and institutions, the Finance Minister introduced the Gold
Monetization Scheme that will enable investors to deploy their gold and
earn interest.
GOLD MONETIZATION SCHEME

Also, this will increase recycling

of domestically held gold and
reduce jewellers’ reliance on
imported gold.
 GOLD MONETIZATION SCHEME

High gold import was one of the reasons for high current account deficit in

recent years, which resulted in a crisis-like situation in the second half of

2013. Imports came down due to restrictions in the form of high import

duties and fall in international gold prices.

Since India imports large amounts of gold, which are to be paid in foreign

exchange, the government devised to recycle the gold stock available in the

country in order to save foreign currency, which will also reduce vulnerability

in the external account.

What is Gold Monetisation
Scheme (GMS)?
GOLD MONETIZATION SCHEME

Gold Monetisation Scheme allows

depositors of gold to earn interest on
their metal accounts with banks.
Once the gold is deposited in metal
account, it will start earning interest.
The interest earned on it will
be exempt from income tax
as well as capital gains tax.
 CURRENT ACCOUNT DEFICIT
GOLD MONETIZATION SCHEME

Let us see the formula of the Current Account Balance (CAB)

CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad [Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers [Workers' Remittances
(unilateral),
Donations, Aids &
What are its objectives?
Grants,
Official, Assistance and
Pensions etc]
 GOLD MONETIZATION SCHEME

The scheme has three basic objectives:

 To mobilize gold held by households and institutions in the

country.
 Make gold available on loan from banks to jewellery businesses.
 To reduce dependence on imports.
GOLD MONETIZATION SCHEME

How it generally works?

 GOLD MONETIZATION SCHEME

 When a customer brings in gold (jewellery) to the bank, it will first be tested
for purity and after the consent of the customer, it will be melted.

 A certificate by the collection centre will be given stating the amount and
purity of gold which will have to be produced in the bank for opening the gold

savings account. The quantity of gold will be credited into the customer's

account.
 GOLD MONETIZATION SCHEME

 Also, customers may be asked to complete KYC (know-your-customer)

process.

 The deposited gold will be lent by banks to jewellers at an interest rate little
higher than the interest paid to customer.
What is the tenure?
 GOLD MONETIZATION SCHEME

 The tenure of gold deposits is likely to be for a minimum of one year,

with breaking of lock-in period facility similar to your fixed deposit

accounts.

 The minimum quantity of deposits is pegged at 30 grams to encourage

even small deposits.

 The gold can be in any form, bullion or jewellery.

How the redemption
takes place?
 GOLD MONETIZATION SCHEME

Customer will have the choice to take cash or gold on redemption, but

the preference has to be stated at the time of deposit.

How is the interest rate
calculated?
 GOLD MONETIZATION SCHEME

Both principal and interest to be paid to the depositors of gold, will be

‘valued’ in gold.

For example if a customer deposits 100 gm of gold and gets one per cent

interest, then, on maturity he has a credit of 101 gram.

The interest rate is decided by the banks concerned.

How will the banks get
incentivized?
 GOLD MONETIZATION SCHEME

Banks will be allowed to deposit the mobilised gold as part of their Cash
Reserve Ratio (CRR) with the Reserve Bank of India (RBI). CRR is the amount
of funds that commercial banks need to keep with the RBI.

Banks can also sell the gold to generate foreign currency. The currency
further can be used for lending to exporters and importers.

Banks can also convert the gold into coins which can be further sold to their
customers.
What Jewellers need to
know?
 GOLD MONETIZATION SCHEME

 Jewellers can open a Gold Loan Account with the bank.

 The jewellers will receive physical delivery of gold from the refiners once
their gold loan is sanctioned.

 The interest rate charged to the jewelers will be based on factors like
interest rate paid to the gold depositors, fee paid to the refiners & Purity
Verification Centres and profit margin of the banks.
 CURRENT ACCOUNT DEFICIT
GOLD MONETIZATION SCHEME

Let us see the formula of the Current Account Balance (CAB)

CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad [Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers [Workers' Remittances
(unilateral),
Hope you have understood the
Donations, Aids & Grants,
concept of ‘Gold Monetization
Official, Assistance and
Pensions etc] Scheme’.
 Please give us

your feedback at

professor@tataamc.com
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