The Union Finance Ministry of India announced the discontinuation of the medium and long-term government deposit components of the Gold Monetisation Scheme (GMS). This decision follows a thorough review of the scheme’s performance and the changing market conditions. The GMS was launched on September 15, 2015, with the aim of reducing gold imports and mobilising domestic gold holdings for productive use.
Gold Monetisation Scheme
The Gold Monetisation Scheme was introduced to encourage individuals and institutions to deposit their gold holdings. It aimed to reduce the country’s reliance on gold imports while utilising existing gold for economic growth. The scheme initially had three components – short-term bank deposits, medium-term government deposits, and long-term government deposits.
Components of the Scheme
- Short-Term Bank Deposits (STBD) – These deposits had a tenure of 1 to 3 years and focused on immediate liquidity.
- Medium-Term Government Deposits (MLTGD) – These deposits were for a duration of 5 to 7 years and aimed at providing stable returns.
- Long-Term Government Deposits (LTGD) – With a tenure of 12 to 15 years, these deposits were intended for long-term investors.
Recent Changes to the Scheme
As of March 26, 2025, the medium and long-term components will no longer be accepted at collection centres or bank branches. Existing deposits under these components will continue until their redemption as per the Reserve Bank of India’s guidelines. The short-term bank deposit option remains available, contingent on individual bank assessments of commercial viability.
Implications of the Discontinuation
The discontinuation of the MLTGD components signifies a shift in the government’s approach to the GMS. This change reflects an effort to adapt to evolving financial landscapes and market conditions. The focus remains on utilising gold effectively within the economy while ensuring that the scheme remains relevant and beneficial.
Future Directions
The Reserve Bank of India is expected to release detailed guidelines regarding the short-term bank deposit option. This will provide clarity on how the scheme will operate moving forward. The government continues to assess the impact of gold on the economy and the effectiveness of the GMS.
Questions for UPSC:
- Discuss the impact of the Gold Monetisation Scheme on India’s economy since its inception.
- Critically examine the reasons behind the discontinuation of the medium and long-term components of the Gold Monetisation Scheme.
- What are the implications of gold holdings for the Indian economy? Explain with suitable examples.
- What are the potential benefits and challenges of the Gold Monetisation Scheme for individual investors and the government?
Answer Hints:
1. Discuss the impact of the Gold Monetisation Scheme on India’s economy since its inception.
- Mobilization of gold – The scheme has helped convert idle gold into productive assets.
- Reduction in imports – Aimed to decrease the dependency on gold imports, contributing to trade balance improvement.
- Financial inclusion – Encouraged households and institutions to participate in the formal financial system.
- Economic growth – Utilization of gold for investments can potentially enhance economic activity.
- Market dynamics – Influenced gold pricing and availability in the domestic market.
2. Critically examine the reasons behind the discontinuation of the medium and long-term components of the Gold Monetisation Scheme.
- Poor performance – The medium and long-term components did not attract sufficient deposits.
- Market conditions – Evolving financial landscape necessitated a reassessment of the scheme’s structure.
- Focus on short-term liquidity – Emphasis shifted to immediate financial needs rather than long-term investments.
- Commercial viability – Banks may find short-term options more aligned with current market demands.
- Policy refinement – The government aims to streamline and optimize the scheme for better effectiveness.
3. What are the implications of gold holdings for the Indian economy? Explain with suitable examples.
- Wealth storage – Gold serves as a hedge against inflation and currency fluctuations for households.
- Investment potential – Gold can be leveraged for loans, enhancing liquidity for individuals and businesses.
- Trade balance – High gold imports negatively impact the current account deficit, affecting economic stability.
- Employment generation – Increased gold mining and processing activities can create jobs in the sector.
- Tax revenue – Formalizing gold holdings through schemes can enhance tax compliance and government revenue.
4. What are the potential benefits and challenges of the Gold Monetisation Scheme for individual investors and the government?
- Benefits for investors – Opportunity to earn interest on idle gold holdings while retaining ownership.
- Liquidity – Access to funds without selling gold, providing financial flexibility to investors.
- Government revenue – Increased mobilization of gold can lead to higher tax revenues and reduced imports.
- Challenges for investors – Market volatility can affect gold prices, impacting returns on investments.
- Trust issues – Skepticism about the safety and transparency of the scheme may deter participation.
