The government could allow Indian families to deposit gold with banks in return for interest payments as part of a plan to put thousands of tonnes of the precious metal stashed at homes into the financial system.
The finance ministry released on Tuesday the draft of a "gold monetisation scheme" that will allow individuals to park a minimum of 30 grams of gold with banks and earn tax-free interests.
Finance minister Arun Jaitley had revealed the government's intent to launch the scheme in his 2015-16 Budget speech, aimed at mobilising unproductive gold owned by Indian households into cash.
Indians' penchant for gold spans centuries and is rooted in religion as the stockpile with households, which is neither traded nor monetised, is estimated to be over 20,000 tonnes, worth about Rs 60 lakh crore at current market price. A large amount of it is held by temples and other religious institutions.
Gold is also an instrument of financial security for 70% of India's rural population.
The government is trying to convince households, who sometimes have little faith in financial institutions, to break the tradition and hand over gold passed down the generations.
The draft released on Tuesday says a person or institution holding surplus gold can get it valued from BIS-approved hallmarking centres, open a "gold savings account" in banks for a minimum of one year and earn interest in either cash or gold units. The interest earned on it would be exempt from income tax as well as capital gains tax.
The draft, citing an instance, says if a customer deposits 100 grams of gold and gets 1% interest, he will have a credit of 101 grams on maturity. The interest will be paid after 30 or 60 days of opening the account.
The depositors will have the option of getting back their asset either in cash or gold, but this has to be specified at the time of making the deposit.
The new scheme, proposed to be introduced in select cities initially, will boost the gems and jewellery sector and cut expensive imports.
The country is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of the metal each year.
The finance ministry has sought comments from stakeholders by June 2.
The scheme's tenure will have a rollout option in multiples of one year and like a fixed deposit, breaking of lock-in period will be allowed.
"To incentivise banks, it is proposed that they may be permitted to deposit the mobilised gold as part of their CRR/SLR requirements with RBI. This aspect is still under examination," the draft says.
Cash reserve ratio (CRR) and statutory liquidity ratio (SLR) are mandatory requirements which banks have to follow in accordance with RBI rules. The SLR is the minimum amount of bonds that banks must have, while the CRR is the share of deposits they have to compulsory keep with the apex bank.
Banks may sell the mobilised gold to generate foreign money, which can be used for onward lending to exporters or importers. They can also convert the gold into coins for onward sale to customers or lend it to jewellers.
The government has also planned to start work on a gold coin that will carry the Ashok Chakra on its face.
(With inputs from agencies)