The government is currently in the process of introducing changes to the existing gold deposit and gold metal loan schemes. The primary aim of these alterations is to gradually control investors from excessively investing in physical gold. Despite the government’s emphasis on gold monetisation over the last few years, including the issuance of gold bonds as part of its borrowing programmes, investment in physical gold and the purchases of jewellery have constantly outpaced investment through financial channels.
Government’s Plan to Amend Gold Schemes
The government has now finalised a number of amendments to the existing revamped Gold Deposit Scheme, Gold Metal Loan Scheme, and India Gold Coin Scheme. The current scheme will be developed to become more appealing from an investment convenience and taxation aspects standpoint.
About the Gold Monetisation Scheme (GMS)
Launched in 2015, GMS aimed to mobilise gold held by households and institutions of the country for productive purposes and to reduce reliance on gold import in the long run. This scheme modified the existing ‘Gold Deposit Scheme’ (GDS) and ‘Gold Metal Loan Scheme’ (GML).
The Revamped Gold Deposit Scheme (R-GDS)
The R-GDS requires a minimum deposit equivalent to 30 grams of raw gold at any one time. There is no maximum limit for a deposit under this scheme. However, proposed changes include decreasing the minimum requirement to 1 gram. Interest earnings and capital gains will continue to be tax-free. Furthermore, all scheduled commercial banks have been granted permissions to implement this scheme and to define their own interest rates.
Challenges of R-GDS
Several challenges remain, particularly cultural issues. For many Indians, parting with their gold, especially jewellery, is difficult. There are also concerns regarding returns on deposited gold. Instead of encouraging individuals to part with the gold, the scheme may encourage larger entities to import more gold for depositing with banks.
The Revamped Gold Metal Loan Scheme (GML)
Under this mechanism, a jewellery manufacturer borrows gold metal instead of rupees and repays the GML with the sale proceeds. The loan period is 180 days for domestic manufacturers and 270 days for exports. However, issues of liquidity pose a challenge as banks might struggle matching gold borrowers with depositors.
The Sovereign Gold Bond Scheme: A New Way to Buy Gold
This scheme encourages people to invest in gold bonds rather than physical gold. Issued by the Reserve Bank of India on behalf of the central government, these bonds will be denominated in multiples of grams of gold with a minimum investment limit of two grams. Despite its benefits, there are concerns that it could become an alternative to rupee bonds and exert upward pressure on interest rates.
The Gold Coin and Bullion Scheme
Under this scheme, the government issues gold coins engraved with the Ashok Chakra. While these intricate details about the gold schemes aim to reform gold management in India, cultural and finance-related challenges need addressing to ensure their effective implementation and acceptance.
