The government on Wednesday announced the launch of a gold monetisation scheme and a sovereign bond plan that will give households and institutions the option to deposit the precious metal in banks and earn interest on its value.
The move is part of the government’s plan to channelise idle assets for productive use, wean people away from investing in gold and reduce costly imports.
The gold monetisation scheme (GMS) will operate on the broad principles of a fixed deposit scheme. Individuals and institutions such as temples can open a “gold savings account” with a bank and earn interest on the value of their bullion and jewellery stock parked in these accounts.
Each individual can deposit a minimum of 30 grammes of gold in return for interest payments.
Collection and purity testing centres will send the gold to refiners who will keep it in their warehouses unless banks prefer to hold it themselves.
The deposits can be made for tenures ranging from a year to 15 years.
Like a fixed deposit, breaking of the lock-in period will be allowed. “For medium and long-term deposits, the rate of interest will be decided by the government, in consultation with the RBI from time to time,” an official statement said.
Indian individuals and institutions such as temples are estimated to be holding 20,000 tonnes of gold.
Separately, the government also approved a sovereign gold bond (SGB) scheme which intends to convert the investment demand for physical gold into paper demand.
Unlike GMS, where the primary objective is to monetise physical gold, SGB targets those who buy gold bars as an investment asset. The objective is to give a dematerialised (demat) option so that such investors are indifferent to whether the asset is physical gold or bonds linked to gold prices.
The bonds will be issued in denominations of 5, 10, 50 or 100 grams or others. The tenure of the bonds, marketed through post offices and other designated agencies, could be for a minimum of five to seven years so that it would protect investors from medium-term volatility in gold prices.
Indians buy an estimated 300 tonnes of gold bars every year purely as an investment asset.
Finance minister Arun Jaitley announced both the schemes in February in the budget for 2015-16.
Jaitley said the deposited gold would be auctioned and used to bolster India’s forex reserves or lent to jewellers.
"It's safer and economically more profitable to go for both the schemes," he said.
“The GMS will drive orderly recycling and enhance transparency, benefiting millions of households and the macroeconomy, as it has the potential to translate gold savings into economic investments,” Somasundaram PR, managing director, India, World Gold Council, said.
“The SBG will allow savers to sell or trade bonds easily on commodity exchanges and key features, such as the ability to use them as collateral for loans and capital gains tax treatment similar to gold, are very thoughtful and timely.”