Budget Special. Monetisation scheme can check imports

To check gold imports and unlock gold estimated at about 20,000 tonnes lying idle with Indian households, the FM has introduced two schemes. One is the gold monetisation scheme where people will earn an interest on the gold deposit they make under the scheme. Jewellers can also borrow gold from this account. The second is the sovereign gold bond scheme, which will carry a fixed rate of interest. At the time of redemption, the bond holder will get the face value of the gold in cash.

The restrictions on gold imports, since 2013, resulted in a sharp drop in gold imports. The country’s gold imports have fallen from a record 969 tonnes in 2011 to 769 tonnes in 2014. Since India depends almost completely on imports to meet its domestic gold demand and supply from imports had dropped, jewellers started offering ‘cash-for-gold’ schemes on old jewellery to get supply of gold. But, despite these efforts, not much supply came to the market from recycled gold.

Gold deposit schemes are not new in the country. Public sector banks run such schemes where investors can earn a nominal interest on the value of gold they deposit. These can then be redeemed in cash at the end of a fixed period. But since the minimum deposit is 500 grams, there have not been many takers for the scheme. The gold monetisation scheme announced in the budget has to keep a low minimum weight requirement for it to click with Indian households and the interest has to be lucrative enough. Currently, the interest is about 0.75 per cent per annum on the value of gold if deposited for three years; if it is four or five years’ deposit, the interest is 1 per cent per annum. The new schemes, if successful, will reduce India’s gold import dependence. Even if five per cent of the domestic gold hoard makes way into these deposits, it will help make a difference to the country’s external account.