For a bunch of schemes aimed at fishing out a chunk of the 25,000 tonnes of yellow metal lying idle with households, the results of the government’s three gold-related investment schemes have largely been disappointing.
The Gold Monetisation Scheme (GMS), since its launch in November 2015, has been able to mobilise just over 6 tonnes of gold, that too mostly from temples and other non-household entities. According to finance ministry data, while a total of 6,160 kg of gold have been mobilised, around 1,730 kg has come in under the medium term deposit scheme and 4,430 kgs were mobilised under the long-term deposit scheme. Under the Sovereign Gold Bond (SGB) scheme, through which government securities are denominated in grams of gold, investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity, the mobilisation in ten tranches has been an equivalent of 22,666 kg of gold.
To put the number in perspective, the 22 tonnes mobilised under the SGB scheme over the last three years translates into just about 1 per cent of India’s demand for physical gold in the three years. The government launched the Scheme in November 2015 with an aim to reduce the demand for physical gold (gold is the second-highest component of the imports bill after crude oil) and shift a part of the gold imported every year for investment purposes into financial savings through Gold Bonds. Clearly, not much has changed since the launch of the Scheme.
While India’s 5-year demand for gold averaged at around 800 tonnes per annum, the demand in 2017 was estimated at 727 tonnes. The World Gold Council expects that the demand in 2018 to be in the range of 700-800 tonnes. While it is lower than the five year average, it has not come down significantly and there is a still a strong demand for physical gold, despite the launch of scheme such as the SGB and GMS.
The 22 tonnes worth of demand through ten tranches of SGB over the last three years, while constituting only around 1 per cent of India’s demand for physical gold in the three years, is despite the imposition of additional measures such as high import duty of 10 per cent and an imposition of 3 per cent GST on gold jewellery. In a bid to make these bonds attractive, the government not only provided exemption from capital gains tax on redemption to investors, but also said that at maturity, investors will get the equivalent rupee value of the quantum of gold invested at the then prevailing price of gold. Further, it allowed cash usage of up to Rs 20,000 for the purchase these bonds.
Salvaging the Scheme
With little success from the existing schemes and measures, the government is learnt to be reworking. While the Centre has indicated that the Gold Monetisation Scheme will be revamped to enable people to open a hassle-free Gold Deposit Account. Alongside, NITI Ayog has also set up a Committee to transform India’s Gold Market under the chairmanship of Ratan P Watal, Principle Advisor, NITI Aayog and the final report of committee is awaited.
Meanwhile, in Budget 2018-19, the Finance Minister Arun Jaitley announced that “The Government will formulate a comprehensive Gold Policy to develop gold as an asset class. The Government will also establish a system of consumer friendly and trade efficient system of regulated gold exchanges in the country. Gold Monetization Scheme will be revamped to enable people to open a hassle-free Gold Deposit Account.”
Earlier, in July 2017, the government modified SGB scheme and incorporated new features and changed certain attributes of the scheme to make it more attractive and reduce the economic strains caused by imports of gold and reduce the Current Account Deficit (CAD).
While initially the limit for an individual for a year was 500 grams, the government raised the investment limit per fiscal year to 4 kg for individuals, 4 Kg for Hindu Undivided Family (HUF) and 20 Kg for Trusts and similar entities notified by the Centre. It further said that the ceiling would be counted on financial year basis and will also include the SGBs purchased during the trading in the secondary market. Also, it was decided to make SGBs available ‘on tap’ and it would be finalised by Ministry of Finance. The government further said that to improve liquidity and tradability of SGBs, appropriate market making initiatives would be devised.
The government is currently running three gold related schemes
Gold Monetisation Scheme: A revamped version of an older Gold Deposit Scheme—to make idle gold productive, by getting consumers to either sell their gold or store it with banks, so it could merge into the formal economy and reduce the country’s gold imports.
Sovereign Gold Bond Scheme: SGBs are government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India.
Gold Coin Scheme: The gold coin bears national emblem Ashok Chakra on one side and Mahatma Gandhi’s image engraved on the other side. Initially the coins will be available in denominations of 5 grams and 10 gm. A 20 gm gold bar will also be available through 125 MMTC outlets across the country