A gold scheme launched by Prime Minister Narendra Modi last year, which aimed at monetising the immense wealth that has so far remained locked away in households, and bank and temple lockers, has met with a lukewarm response.
The Gold Deposit Scheme allows anyone holding more than 30 grammes of gold to deposit it with the government and earn interest at the rate of 2%-2.5% per annum. The government hoped that this would encourage people to come out and deposit their gold.
However, till May 2016 – more than seven months after the scheme was launched – only 2,891 kg of gold has been deposited. About half of this has come from a single source: the Tirumala Tirupati trust that deposited 1,311 kg of gold under a three-year short-term gold monetisation scheme.
While announcing the scheme in his budget speech last year, Finance Minister Arun Jaitley said that about 20,000 tonnes of gold stock lay idle in the country, and the gold monetisation scheme could help cut down on imports, and also boost the jewellery sector by allowing ornament manufacturers to borrow gold from the government at good rates.
At that time, Jaitley said: “The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account. Banks/other dealers would also be able to monetize this gold.”
While the Gold Deposit Scheme offers interest rates higher than the 1% per annum an earlier scheme offered, the amount of gold collected so far is just 0.02% of the finance ministry’s estimates of the total volume of gold in homes and temples.
The contrast is stark when one observes that India imported an additional 928.7 tonnes of gold in the last calendar year itself.
It is not as if the Finance Ministry is not aware of the lukewarm interest. The scheme has been under constant review by the government, which also tweaked it to make it more attractive to potential depositors.
The government is also pushing banks to increase gold deposits with their existing customers under the scheme. Bankers have been asked to take a “practical approach” when asking for guarantees or collateral from collection centres that approach them to borrow gold deposited under the scheme.
A Ministry of Finance press release in May stated: “Secretary, DEA [Department of Economic Affairs] appealed to the banks to put concerted efforts to mobilize more gold under the GMS [Gold Monetisation Scheme] in order to achieve the Scheme’s objectives. He asked the banks to increase the number of tripartite and bipartite agreements with Collection and Purity Testing Centers and refiners.”
This came after initial media reports claimed that the response to the scheme was muted since it seemed less like an investment opportunity and more like a trap to get people under the tax net since those depositing gold more than Rs 50,000 in value are required to disclose their PAN, or Permanent Account Numbers.
“The present scheme will not bring out even 20 tonnes of gold,” predicted Anantha Padmanabhan, southern region head of the All India Gems and Jewellery Trade Federation, while speaking to Reuters.
However, it is not just ordinary consumers of gold who have been lukewarm in their response to the scheme. Last month, the Indian Express reported that Members of Parliament, who collectively hold about 710 kg of gold, were quick to praise the scheme but did not opt for it.
The paper quoted Amar Singh of the Samajwadi Party as saying: “I would love to put my gold in the scheme but I have not been able to convince my wife to part with her gold holdings. I know she will not do it and, if I opt for the scheme, it will lead to domestic squabble which I don’t want.”
Gold as an emergency fund
Meanwhile, economists feel that apart from the cultural and emotional connect with the yellow metal, the reason the gold scheme is not taking off yet is because gold is seen as urgent collateral among many poor households who may not want to part with it.
“The rural poor hold gold in physical form in the absence of financial inclusion,” said Radhika Pandey from the National Institute of Public Finance and Policy. “These households have had little or no access to formal financial savings instruments. Gold is an instrument against which they can borrow in times of need. Hence, this section of people isn’t going to be too enthusiastic about the gold monetisation scheme.”