Gold Monetization Scheme – SK Patodia

Gold Monetization Scheme

Gold Monetization means converting the country’s gold holdings into cash to spur spending and investment, and limits the need to import gold.

Why Gold Monetization Scheme

India has around 20,000 tons of gold lying in households and temples. That’s the same weight as around 3,300 adult elephants. Worth of gold is around $767 billion.

The government wants to unlock the earning potential of this domestic treasure trove.

The idea is to tap into the country’s idle bullion by allowing owners to deposit their stocks with banks to earn interest. The minimum deposit is 30 grams in the form of bullion or jewellery to earn tax-free interest, under the draft rules. The mobilized metal might be loaned to jewelers by the banks to make jewellery, in which case you won’t get back the same metal you put in.

If the government is able to put the stockpiles of idle gold to use, it could help curb imports, which currently stand at nearly 1,000 tons annually and reduce the country’s need for foreign exchange reserves.

Objectives of the Gold Monetization Scheme:

The objectives of the Gold Monetization scheme are:

  • To mobilize the gold held by households and institutions in the country
  • To provide a fillip to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks.
  • To be able to reduce reliance on import of gold over time to meet the domestic demand.

Gold Monetization Scheme

The draft outline of the scheme has been prepared after due deliberations and consultations with various stakeholders which include banks, refineries, hallmarking Centres, jewelers’ associations; RBI; and various government departments.

    1. Purity Verification and Deposit of Gold – There are at present 350 Hallmarking Centres that are engaged in certifying the purity of the gold that the jewellers manufacture on a daily basis and for which they charge a fee from the Jewellers. Gold needs to be stripped of stones, melted and tested for purity before it can be deposited. These Hallmarking Centres will act as ‘Purity Testing Centres’.After all the procedure mentioned in the draft scheme is completed and customer agrees to deposit the gold, he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold.
    2. Transfer of gold to refineries – Purity Testing Centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless the banks prefer to hold it themselves. For the services provided by the refiners, they will be paid a fee by the banks, as decided by them, mutually.
    3. Opening of Gold Savings Account with Bank – When the customer produces the certificate of gold deposited at the Purity Testing Centre, the bank will in turn open a ‘Gold Savings Account’ for the customer and credit the ‘quantity’ of gold into the customer’s account. Simultaneously, the Purity Verification Centre will also inform the bank about the deposit made.

The summary of above points is depicted by a diagram given below:-

The Process

The bank will commit to paying an interest to the customer which will be payable after 30/60 days of opening of the Gold Savings Account. The amount of interest rate to be given is proposed to be left to the banks to decide. Both principal and interest to be paid to the depositors of gold will be ‘valued’ in gold. For example if a customer deposits 100 grams of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 grams.

The rate will be set by banks. But to attract depositors, the interest rates should be “more than 4% to induce households to part with their gold

Lending Gold to the Jewellers

      • Gold Loan Account: The jewellers, on the basis of the terms and conditions of the banks, will get a Gold Loan Account opened at the bank.

Delivery of gold to jewellers: When a gold loan is sanctioned, the jewellers will receive physical delivery of gold from the refiners. The banks will in turn make the requisite entry in the jewelers’ Gold Loan Account.

      • Interest received by banks: The interest rate charged by the banks will have to cover the following:
      • Interest rate paid to the depositors of gold.
      • Fee paid to the refiners and Purity Verification Centres.
      • Profit margin of the banks.
      • The banks can directly get gold from the international market on a consignment basis and lend it to the jewellers. If this route is more lucrative, then the entire purpose will get defeated. Thus, this aspect will also have to be kept in mind, while deciding the interest rate.

Conclusion:

It’s a known fact that Gold & Real Estate were safe havens to park Black Money. Gold Monetization Scheme is a good way to unlock the black money parked in the form of gold. Currently, hoarders are also finding ways to either exit or convert it into a sort of productive asset.

Gold Monetization Scheme will be sort of amnesty scheme for general public to declare unaccounted gold lying in the lockers.

For more information about Gold Monetization Scheme, visit skpatodia.in Or talk to our executive.

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