Gold monetisation scheme on the anvil, govt plans to involve jewellers

A gold monetisation scheme proposed in the Union Budget for FY2016 is expected to offer interest rate or returns in currency marked to gold prices. While on maturity, repayment will be in rupees equivalent to the price of gold at the time, even interest rates may also be paid in rupee but as a percentage of gold price, sources said. Under existing schemes, physical gold is given back at the time of maturity. 

The Finance Ministry is reported to be debating various aspects of the scheme, including how to pay higher rate of return, how to set up infrastructure like assaying centres, and agents’ network to help banks mobilise more gold deposits. 

Under current gold deposit schemes, gold or jewellery collected is melted only at the government mint, and a purity certificate is issued after 30 days. To make the new scheme a success, the government plans to use more than 200 existing assaying centres, including those in the private sector. This network will subsequently expanded to be able to give purity certificate to depositors in a day. 

Also, under the current scheme, which was launched 15 years ago, only a minimum of 500 gram gold deposit is accepted; this is likely to be reduced to 50 gram. Banks will also perform a Know Your Customer check of depositors, along with their PAN details. 

The government also proposes to involve jewellers and other agencies to act as agents to convince customers to deposit gold lying idle with them in form of jewellery or coins and bars. Experts have recommended that the government widen this agents’ network as much as possible. 

The rate of interest is expected to be around 1.5-2%. So, if a customer deposits 100 gram of gold, at the end of the year, his/her account will be credited with rupee equivalent to 1.5-2% of gold price prevailing on that day. However, for repayment – whether it is interest or on maturity – premia prevailing in open market in India will not be considered; instead the base gold price (London price) will be converted into rupees and applicable taxes.

Existing scheme exempts interest income and also offers wealth tax and capital gain tax exemptions which in all likelihood will be retained. According to sources close to development, nomination facility, loan against deposit and transferability option are also under consideration of the government. 

While banks have asked that the minimum deposit be retained at 500 grams because collecting small denomination gold from smaller depositors increases administrative and other costs, sources said the government has rejected the proposal. After mobilising gold, banks will have to lend the yellow metal to jewellers.  

There is also a proposal to exempt gold deposits from Cash Reserve Ratio requirement and allow banks to gradually increase gold as a part of normal CRR irrespective of gold deposit. The Reserve Bank of India, however, is understood to have said no to the second proposal, but gold received under the scheme is most likely to be exempted from CRR. Banks may still have to maintain capital adequacy on that.