Gold Monetisation Scheme: Innovative step of GoI to utilize idle domestic gold

Updated on July 26, 2016

Gold Monetisation scheme (GMS) facilitates the depositors of gold to earn interest on their metal accounts

Earnings under GMS are exempt from capital gains tax, wealth tax and income tax

Gold Monetisation Scheme 2015 is a hot current affairs topic and more GK questions in recent entrance exams including MBA entrance tests have been framed on it. Questions on GK or General Awareness form an important section with a weightage of 15 to 25% in almost all the national level MBA entrance tests including XAT, IIFT, SNAP. They are also the source of discussion during GD, PI, WAT, Extempore topics for MBA admission in IIMs, FMS, MDI, SPJIMR, XLRI and other highly ranked institutes.

MBAUniverse.com has begun with a unique initiative of publishing a series of current GK topics to benefit the MBA aspirants to know more about the current national and global environment that become the source of GK questions.

Gold Monetisation Scheme is an innovative and unique step introduced by Government of India in the Union Budget 2015-16 with the aim to utilize the idle lying domestic gold to correct its foreign exchange reserve position.

What is Gold Monetisation Scheme?
Gold Monetization Scheme is basically a new deposit tool to ensure mobilization of gold possessed by various families and institutions in India. Gold Monetisation scheme (GMS) facilitates the depositors of gold to earn interest on their metal accounts. Once the gold is deposited in metal account, it will start earning interest on the same.

It is expected that the scheme would turn gold into a productive asset in India. GMS is a modification of the existing Gold Deposit Scheme (GDS) and Gold Metal Loan Scheme (GML), and it would replace the existing Gold Deposit Scheme, 1999.

When a customer brings in gold to the counter of specified agency or bank, the purity of gold is determined and exact quantity of gold is credited in the metal account. Customers may be asked to complete KYC (know-your-customer) process. The deposited gold will be lent by banks to jewellers at an interest rate little higher than the interest paid to customer.

On maturity, the depositor of Gold will have the choice to take cash or gold on redemption, but the preference has to be stated at the time of deposit.

GMS: Origin and Launch
The Gold Monetization Scheme was launched on 5th November 2015 by the Prime Minister Narendra Modi.

In his Budget 2015-16, Union Finance Minister Arun Jaitley stated that stocks of gold in India were estimated to be over 20,000 tonnes but mostly this gold was neither traded, nor monetised. He proposed a Gold Monetisation Scheme, which would replace both the present Gold Deposit and Gold Metal Loan Schemes. He said the new scheme would 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 monetise this gold.

Scheme with 2 components
The Finance Minister announced the development of an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold. The bonds would carry a fixed rate of interest, and also be redeemable in terms of the face value of the gold, at the time of redemption by the holder of the bond.

Mr. Jaitley also announced that the Government shall commence work on developing an Indian Gold Coin, which will carry the Ashok Chakra on its face. Such an Indian Gold Coin would help reduce the demand for coins minted outside India and would also help to recycle the gold available in the country.

Scheme Objectives

-- To mobilize the idle gold in the country and put it into productive use.

-- To provide the investors an opportunity to earn interest income on their idle gold holdings.

-- In the long run, to reduce country’s reliance on the import of gold

Key facts about Revamped scheme
The Gold Monetisation scheme (GMS) has been launched through designated commercial banks’ branches by the reserve Bank of India. The Revamped Gold Deposit Scheme (R- GDS) is in the nature of a fixed deposit in gold. The depositors can deposit their idle gold under R- GDS which will provide them safety, interest earnings and a lot more.

Eligibility
Any Resident Indian of the following categories:
Individuals, singly or jointly (as Former or Survivor)
Proprietorship & Partnership firms.

HUFs
Trusts including Mutual Funds/Exchange Traded Funds registered under SEBI (Mutual Fund)

Companies

Minimum Quantity
30 Grams gross. There is no upper limit for Gold Deposit

3 Types of Deposit

-- Short Term Bank Deposit: Tenure 1 to 3 years. Redemption either in rupee equivalent or gold.

-- Medium Term Government Deposit: Tenure: 5-7 years. The deposit will be accepted by the Bank on behalf of the Central Government. Redemption of the deposit will be only in INR equivalent of the value of gold as per then prevailing price of gold

-- Long Term Government Deposit: Tenure 12-15 years. The deposit will be accepted by the Bank on behalf of the Central Government. Redemption of the deposit will be only in INR equivalent of the value of gold as per the then prevailing price of gold

Applicable Interest and Payment cycle
Short term: 0.50% per annum for 1 year; 0.55% for 2 years; 0.60% for 3 years.
Medium Term: 2.25% per annum
Long Term: 2.50% per annum

Interest on deposits under the scheme will start accruing from the date of conversion of gold deposited into tradable gold bars after refinement or 30 days after the receipt of gold whichever is earlier.

Payment cycle is either Non-Cumulative (on 31st March) every year or Cumulative (On Maturity).

The principal and interest on Short term deposit shall be denominated in gold. In the case of Medium and Long Term, the principal will be denominated in gold but the interest shall be calculated in Indian Rupees with reference to the value of gold at the time of the deposit.

Kind of Gold Accepted
Gold bars, Coins, Jewellery etc. will be accepted in scrap form only. Depositors need to submit Application Form, Identification Proof, Address Proof and Inventory Form.

Gold Deposit Certificate (in 995 fineness) will be issued by the Bank and will be sent to the depositor.

Verification of Gold Purity
Gold's purity will be checked through authorised Collection and Purity Testing Centres before issuing the Gold Deposit Certificate by the Bank. Gold in any form can be taken to these centres and they will assess the gold in front of the customer and will provide with a certificate on purity and gold content, once you decide to deposit the gold in one of the deposit schemes

Repayment & Premature payment
For short term deposit of gold the option is to take repayment of principal either in gold or equivalent rupees as on the date of maturity. Premature payment permitted after a lock-in period of 1 year with a penalty on applicable interest rate.

For medium and long term Government Deposit the redemption will only be in INR equivalent of the value of gold as per the then prevailing price of gold.

Premature payment of a Medium Term Government Deposit (MTGD) is allowed to be withdrawn any time after 3 years and a Long Term Government Deposit (LTGD) after 5 years. Premature penalty will be applicable as per RBI Notification dated 21.01.2016.

Gold Monetisation Scheme: Benefits
There are many positives to depositing under the Gold Monetisation scheme:

-- The gold monetisation scheme earns interest for the gold jewellery lying in the locker.

-- Broken jewellery or jewellery that one doesn't want to wear can earn interest in gold.

-- Coins and bars can earn interest apart from the appreciation of value

-- The deposited gold will be securely maintained by the bank.

-- Redemption is possible in physical gold or rupees. For the first time gold purchase will offer further earning opportunity.

-- Earnings under GMS are exempt from capital gains tax, wealth tax and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest the depositor makes from it

What banks do with Gold Deposit?
The designated banks may sell or lend the gold accepted under the short-term bank deposit to MMTC for minting India Gold Coins and to jewellers, or sell it to other designated banks participating in the scheme.

No questions asked till September 30
Prime Minister of India Shri Narendra Modi on Saturday July 23, 2016 appealed the people to benefit from the government’s gold monetisation scheme and declare their undisclosed income before September 30 and take advantage of a one-time amnesty scheme.

The government has maintained no questions would be asked about the source of the undisclosed income or assets if the declaration is made voluntarily by September 30. Comparing unutilised gold to “dead money”, the PM asked jewellers to encourage their clients to park such jewellery or bars and coins with banks under the monetisation scheme.

Emerging GK questions from the Text

-- Abbreviations: GMS; STBD; MTGD; LTGD

-- What is minimum quantity of Gold accepted by the Bank under the scheme?

-- What are Short term, medium term and long term tenure interest rates under the scheme?

-- Can Medium and long term gold deposits be repaid in Gold on redemption?

-- Does the scheme allow FDI or NRI deposit?

-- Which Bank will have overall control on the Scheme?