The Government of India launched the Gold Monetisation Scheme in November 2015 to mobilize gold and make its economic utilization easier. In the long run, this might help India lessen its reliance on imported gold. Therefore, this scheme becomes particularly important from the exam point of view as questions on schemes have been asked in both the UPSC Preliminary and Mains Examination.

Source: Ministry of Information and Broadcasting

In this article, we shall discuss the features, benefits, and objectives of the Gold Monetisation Scheme in detail. This will be very useful for aspirants in the UPSC Prelims Exam.

What is Gold Monetisation Scheme?

The Gold Monetization Scheme (GMS) is a Government of India initiative. It aims to mobilize gold held by households and institutions in the country and facilitate its use for productive purposes. The scheme was launched in 2015 and is administered by the Reserve Bank of India (RBI).

Background on the Gold Monetisation Scheme

• Many forms of gold are kept unused in Indian households.
• Even if gold’s value increases with time, storing it remains expensive.
• One can either pay for a bank locker or worry about the security of the item at home when storing stuff.
• Thus, in 2015, the Indian government introduced the Gold Monetization Scheme (GMS).

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Objectives of the Gold Monetisation Scheme in India

The objectives of the Gold Monetization Scheme (GMS) are:

• The GMS aims to bring the idle gold lying in Indian homes and institutions into the productive economy. 
• India is the world's largest importer of gold. The GMS aims to reduce this reliance. It encourages people to deposit their gold with banks and financial institutions instead of selling it.
• The GMS makes it easy for people to invest in gold, even if they do not have a lot of money. This is because people can deposit their gold in small quantities and earn interest on it.
• The GMS helps to support the gold and jewellery sectors. It provides banks and financial institutions with a reliable source of gold. This can help to reduce the cost of gold for consumers. It helps promote the growth of the gold and jewellery industries.

Features of Gold Monetisation Scheme

Here are the key features of the Gold Monetisation Scheme:

• There are two types of deposit options - Short-term deposits for 1 to 3 years and Long-term deposits for 5 to 15 years. This provides flexibility to depositors as per their needs.
• The gold under the scheme can be deposited in various forms. This includes bars, coins, jewelry, etc., making it more convenient for depositors.
• The gold deposited is valued at live international prices set by the London Bullion Market Association (LBMA). This ensures fair pricing for depositors.
• The scheme requires basic KYC documents like Aadhar and PAN cards, along with details of the gold to be deposited. The formalities are kept simple.
• The deposits under the scheme fetch competitive interest rates. The rates range from 2.5% for short-term to 3% for long-term deposits. The interest income is taxable under income tax.
• The gold deposited is stored securely in participating banks and refineries to ensure safety.
• Individuals can avail of loans up to 75% of the value of deposited gold from participating banks.
• The deposits are liquid in nature. The depositors can withdraw gold after specified lock-in periods for different schemes.

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Eligibility for the Gold Monetisation Scheme

• Indian residents are eligible to take part in the Gold Monetisation Scheme. This includes individuals, trusts, and Hindu Undivided Families (HUFs).
• Non-resident Indians (NRIs) can also take part in some deposit schemes under the Gold Monetisation Scheme.
• Any individual above 18 years of age can open a Gold Savings Account. There is no upper age limit.
• NRIs can take part only in Sovereign Gold Bond deposits of 5 to 7-year tenor under the Gold Monetisation Scheme.
• Along with KYC documents, the depositor needs to submit a PAN card and details of the pledged gold to be deposited under the scheme. The gold can be in the form of bars, coins or jewellery.
• Trusts and HUFs are also eligible to take part in the Gold Monetisation Scheme.

Gold Monetisation Scheme Benefits 

The major benefits of the Gold Monetisation Scheme are:

• Individuals can monetize their idle gold holdings through the scheme. They can deposit gold in various accounts and earn interest on it. This unlocks the economic potential of gold.
• Deposits under the scheme fetch a fixed rate of interest, which is taxable as per income tax rules. 
  • Interest rates vary for different deposit options. 
  • In short-term deposits, the interest rate is around 2.5% p.a., while in long-term deposits, it goes up to 3% p.a.
• Depositors can avail loans up to 75% of the value of deposited gold.
• The gold deposited is valued at live international prices set by the London Bullion Market Association (LBMA). This ensures fair pricing for depositors.
• The deposited gold is stored in high-security vaults of banks and refineries. Depositors can prematurely withdraw gold deposits after a specified lock-in period.
• The scheme requires minimum KYC documents. Other formalities are kept simple to encourage wider participation.
• Indexation benefit is available on capital gains from premature withdrawals.

Challenges faced in implementing the Gold Monetisation Scheme

Feelings of attachment:

• Most household gold holdings have a traditional attachment value.
• It has religious ritual significance and is regarded as a high standard of prestige.
•  A legacy concept involves a daughter who is married and the transmission of gold from one generation to the next.

Source of unreported income:

• If a household does not have purchasing receipts, they should be wary of tax inspections.

Reduced interest rates under the scheme:

• Because of the low interest rates, investments are not being attracted. There is a maturity time for the schemes. It is thought that gold may be traded and is equivalent to money.

Certification:

• There aren’t many jewelers in India that offer certifications outside of the major cities.
• The quality of the gold that depositors already own would be significantly reduced if these refined gold products were to be deposited.

Awareness:

• Not enough people are aware of the benefits of the scheme as mentioned above so as to attract their attention.
• The banks do not sufficiently promote the scheme.

What is the difference between a Gold Monetisation Scheme Program and a Sovereign Gold Bond?

• According to the Gold Monetisation Scheme, citizens can receive tax-free interest by making a one-year bank deposit of at least 30 grams of gold in bullion or jewelry.
• According to the Sovereign Bond Scheme, rupee-denominated gold bonds in denominations of 5, 10, 50, and 100 grams can be issued.

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Key Highlights of the Gold Monetisation Scheme

Conclusion

• NITI Aayog is looking for suggestions to enhance the effectiveness of this scheme.
• One suggestion is that the government works with jewelers since they have more faith in the public.
• Banks and BIS-certified jewelers may both be able to collect gold deposits.
• Urban residents spend more money on gold. To enhance their interest in the scheme, the plans must be made known to them.
• Security, liquidity, and capital gains are the three basic justifications for purchasing gold.
• Policymakers need to address the issues and challenges faced by the scheme, which are mentioned above, so as to better implement the scheme.

Gold Monetisation Scheme (UPSC Government Schemes): Download PDF Here!

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We hope that all your doubts regarding the Gold Monetisation Scheme will be cleared after going through this article. You can download the Testbook App now to check out various other topics relevant to the UPSC IAS Exam.