India's proposed 'Gold Deposit Scheme' could raise INR 1 trillion

NEW DELHI (Scrap Monster): The proposed ‘Gold Deposit Scheme’ announced during the budget presented in Indian Parliament on February 28^th is expected to fetch at least Rs 1 trillion as precious metal deposits. The research note published yesterday by the State Bank of India (SBI) economic research department terms the new scheme as a ‘game changer’. The finance minister had announced multiple measures to monetize huge stashes of gold held by Indian households, in an attempt to curtail gold imports into the country.

The proposed scheme will help gold depositors to earn interest and jewelers to obtain loans on their metal accounts. The new scheme will replace the present gold deposit and gold metal loan schemes. The monetization of gold could be done through banks or other dealers. The returns in the gold monetization schemes would be as high as 3%.

In addition to the deposit scheme, the government also announced a gold sovereign bond with a low interest rate of 1.5 to 2%. However, upon redemption, the investor will get back amounts equivalent to gold price on the day of redemption. Thirdly, the government had also announced to develop an Indian Gold Coin which will carry ‘Ashoka Chakra’ on its face.

The idle gold stocks in India are estimated to be around 20,000 tonnes, which could possibly ease supply concerns of gold in the country. The monetization of these large gold stocks may help the country to reduce its gold imports. Currently, India imports 800 to 1,000 tonnes of gold every year.

However, industry experts raised concerns, saying that failure of gold monetization schemes may escalate illegal gold trade into the country, as government has left the gold import duties unchanged at 10%. The high gold import duties are likely to trim official gold supply. According to All India Gem & Jewellery Trade Federation (GJF), the gold monetization schemes are to be considered as a first step to reduce the country’s dependence on imported gold. Further details of the scheme are awaited, said GJF.