Make your stash of gold earn money
In Budget 2015, the Modi government announced the Gold Monetisation Scheme in an attempt to convert India’s massive gold holdings into cash. Success of this scheme will not only limit gold imports but also increase investment and spending.
India’s love for gold
Let’s look at some numbers to understand the potential impact of this scheme. India is the largest consumer of gold in the world. Indian gold imports stand at 1000 tonnes/annum (minimum). Gold imports for the past 15 years have cost the country over $250 billion. As per finance ministry calculations, there are 20,000 tonnes of gold stashed away unproductively in household lockers!
Gold Monetisation Scheme
This scheme would allow jewellers and households to open accounts to deposit their gold with banks. These accounts will then work similarly to bank accounts. The bank will pay interest for the gold deposits and the depositors can borrow money through these accounts. The depositors can also withdraw the deposited gold whenever he/she wishes to.
The advantage of this scheme is that it will reduce imports, ease the drain on forex reserves and stabilise the falling rupee. In addition, it will circulate the 20,000 tonnes of locked up gold in the economy. This stock of gold, which is currently unproductive, will thus be used for spending and investment, contributing to the growth of the economy.
Sovereign Gold Bond
Instead of buying gold as an investment, investors can now purchase gold bonds. The price of these bonds will be based on the price of a fixed quantity of gold. On maturity of the bond, the investor will get an amount equal to the value of the gold on the maturity date. In short, the gold bonds will give the investor the same return as buying gold and selling it later during price increase. Since the transactions in this scheme do not actually involve trading in gold, this will reduce the quantity of gold that is currently imported for investment purposes and save on outflow of forex.
Indian gold coin
There was also a proposal to introduce an Indian made gold coin, which will carry the Ashoka Chakra on its face. According to the ministry, this would reduce the current demand for imported gold coins and recycle the gold currently available in the country.
Do you think the gold monetisation schemes introduced by the government have any relevance for you? Please write in and let us know.