Changing the Game Rules with Gold Monetisation

Published: 07th March 2015 06:00 AM  |   Last Updated: 06th March 2015 11:11 PM   |  A+A-

The budget announced ambitious plans to monetise India’s household gold, reportedly worth $1 trillion — a large portion with the households. While the thought process is on the right track, the scheme has all the makings of remaining a non-starter, unless great care is given to the detailing on the execution front. The plan is to allow depositors of gold to earn interest in their metal account and the jewelers, also to obtain loans in their metal account. Meanwhile, the banks get to monetise this gold with the Reserve Bank of India. The government has its task cut out as it will have to offer a sufficiently lucrative return by way of interest unlike the 2.5-3 per cent offered earlier, whether the target be the household with large holdings or the smaller ones.

The earlier scheme, which was in operation during 1998-99, failed to take off as it required a minimum half a kilogram of gold to be deposited. If the plan is to tap into the small holders of gold jewellery worth 10-20 gm category, the worry line for the government would begin straightaway as many of them would be unwilling to accept gold coins in place of their ornaments at the end of the deposit cycle. The immediate challenge would lie in transforming the mindset of the average Indian household, marked by its love for the yellow metal in the form of jewellery. Ornaments accumulated over generations come with the baggage of a big emotional connect that dares this thought process.

The tax department too will have to reconcile how it will leverage information that comes its way about gold suddenly coming out of households. Extreme care has to be taken so that genuine customers are not scared away by any attempt to catch those who may have used black money to buy the yellow metal. Eventually, more refining centres that are London Bullion Markets Association-accredited will not only change the rules of the game of gold as now played in India but integrate it better with the world market.


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