1. Gold Monetisation Scheme
V. KARTHIK VARMA,
On May 16 2014, when NDA government came into the power under the
leadership of Prime Minister Narendra Modi , the prime target of the Central government was to boost the
economic growth, by reducing other barriers like high levels of inflation , the Current Account Deficit
(CAD) , improving the trade relations across the borders etc. In the process certain achievements are made
where the inflation levels an year back which is recorded in the levels of 7-8% are brought down to 5.4%.
The current account which actually measures the difference between the exports and imports have been
brought down to the deficit from 4.7% of GDP to 1.4% of GDP. The imports in India has been decreased in
May 2015 to USD 32,253Mn from USD 33,050Mn in April 2014.
India is heavily dependent on the crude oil imports which is accounting for
34% of total imports, whereas gold occupied the second position of imports accounting for 12% of total
imports. In order to bring down the current account deficit the government has to either reduce the imports
of crude oil or gold. It is very difficult to reduce the import of crude oil as it might affect the Oil and Gas
industry and few other sectors, something that can be done is to reduce the level of gold imports by proper
regulations.
In the Budget 2015-16 presented by Hon’ble Union Finance Minister Arun
Jaitley introduced a new scheme called Gold Monetisation Scheme. It is an innovative way to reduce the
import of gold from the overseas. He stated that the stocks of gold in India is estimated to be around 20,000
tonnes but mostly this gold is neither traded nor monetised. This 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
and other dealers would also be able to monetise this gold. The Finance Minister also 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.
DRAFT OF GOLD MONETISATIONSCHEME
OBJECTIVE: The objectives of Gold Monetisation scheme are:
i) To mobilize the gold held by the household.
ii) To provide fillip to the gems and jewellers sectors in the industry to make raw
material available for them.
iii) To reduce reliance on the import of gold from the overseas.
PROCESS FOR GOLD MONETISATION:
i) Purity verification and Deposit of Gold:
a) Purity Testing Centre: There are about 350 Hallmarking Testing Centres that are Bureau of
Indian Standards (BIS), these may not be jewellers but they are certified testers. These
centres act as purity testing centres, who test the purity of the gold.
b) Preliminary Test: In a Purity Testing Centre, a preliminary XRF machine-test will be
conducted to tell the customer the approximate amount of pure gold. If the customer agrees,
he will have to fill-up a Bank/KYC form and give his consent for melting the gold. If the
customer does not agree to the XRF machine test, he can take his jewellery back at this stage.
The time spent by the customer will be about 45 minutes in the centre up till this stage .
c) Fire Assay Test: After receiving the customer’s consent for melting the gold for conducting a
further test of purity, at the same collection centre, the gold ornament will then be cleaned of
its dirt, studs, meena etc. The studs will be handed-over to the customer there itself. Net

2. weight of the jewellery will be taken after such removals and told to the customer. Then, right
in front of the customer the jewellery will be melted and through a fire assay, its purity will
be ascertained. These centres have viewing galleries from where the customer can see the
entire process. The time taken is expected not to exceed 3-4 hours.
d) Deposit of Gold: When the results of the fire assay are told to the customer, he has a choice
of either refusing to accept, in which case he can take back the melted gold in the form of
gold bars, after paying a nominal fee to that centre; or he may agree to deposit his gold (in
which case the fee will be paid by the bank). If the customer agrees to deposit the gold, then
he will be given a certificate by the collection centre certifying the amount and purity of the
deposited gold.
e) Conditions: The minimum quantity of gold that a customer can bring is proposed to be set at
30 grams, so that even small depositors are encouraged. Gold can be in any form(bullion or
jewellery).
ii) OPENING OF GOLD SAVINGS ACCOUNT WITH BANKS:
a) Gold Saving Account: When the customer produces the certificate of gold deposited at the
Purity Testing Centre, the bank will in turn open a ‘Gold Savings Account’ for the customer
and credit the ‘quantity’ of gold into the customer’s account. Simultaneously, the Purity
Verification Centre will also inform the bank about the deposit made.
b) Interest Payment By Banks: The bank will commit to paying an interest to the customer
which will be payable after 30/60 days of opening of the Gold Savings Account. The amount
of interest rate to be given is proposed to be left to the banks to decide. Both principal and
interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a
customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a
credit of 101 gms.
c) Redemption: The customer will have the option of redemption either in cash or in gold,
which will have to be exercised in the beginning itself (that is, at the time of making the
deposit).
d) Tenure: The tenure of the deposit will be minimum 1 year and with a roll out in multiples of
one year. Like a fixed deposit, breaking of lockin period will be allowed.
iii) TRANSFER OF GOLD TO THE REFINERIES:
a) Refineries: At present there are about 32 refineries in the country. The laboratories of some of
these refineries are NABL accredited which means that the process that they adopt is
certified. BIS has been asked by this Department to ascertain if it can conduct accreditation of
the products being produced in these refineries also.
b) Transfer of Gold to The Refineries: Purity Testing Centres will send the gold to the refiners.
The refiners will keep the gold in their ware-houses, unless the banks prefer to hold it
themselves.
c) Payment: For the services provided by the refiners, they will be paid a fee by the banks, as
decided by them, mutually.
iv) UTILIZATION OF DEPOSITED GOODS:
a) CRR&SLR Purpose: To incentivize banks, it is proposed that they may be permitted to
deposit the mobilized gold as part of their CRR/SLR requirements with RBI. This aspect is
still under examination.
b) Foreign Currency: Banks may sell the gold to generate foreign currency. The foreign
currency thus generated can then be used for onward lending to exporters / importers.
c) Exchanges: Banks to buy and sell on domestic commodity exchanges, where mobilized gold
can be delivered.
d) Lending to Jewellers.
v) LENDING THE GOLD TO THE JEWELLERS:
a) Gold Loan Account: The jewellers, on the basis of the terms and conditions of the banks, will
get a Gold Loan Account opened at the bank.

3. b) Delivery of Gold to Jewellers: When a gold loan is sanctioned, the jewellers will receive
physical delivery of gold from the refiners. The banks will in turn make the requisite entry in
the jewellers’ Gold Loan Account.
c) Interest Received by Banks: The interest rate charged by the banks will have to cover the
following:
 Interest rate paid to the depositors of gold
 Fee paid to the refiners and Purity Verification Centres.
 Profit margin of the banks.
 The banks can directly get gold from the international market on a consignment basis
and lend it to the jewellers. If this route is more lucrative, then the entire purpose will
get defeated. Thus, this aspect will also have to be kept in mind, while deciding the
interest rate.
CHALLENGES TO THE SCHEME: The crux of feedback received by the government from the
public on the proposed scheme gives the picture of the Indian household mentality.
I) First of all Indians who respect gold which is being passed on by the elders, would not like the
gold to be melted to liquid form.
II) Nobody seems to be happy with the low rate of interest of (1%-2%).
III) Moreover on the time of maturity the depositor will not get gold in the same form which he
actually deposited, he might receive a gold coin or bar.
These suggestions rightly mirror the mentality of Indian households, for whom gold is much
more than an avenue for investment. The government has been trying out all methods to cut
down the gold consumption in India. It has employed different methods--sharply hiking import
duties and providing public return the idle stock of gold lying in domestic households and
temples back to circulation.
The Ministry of Finance have made a proposal of keeping the gold deposits as the CRR by the
banks with the central bank, this proposal is still under discussion as RBI is opposing because
gold cannot be taken into consideration as CRR in which only liquid cash is to be taken into
consideration because the reserve might get affected by the fluctuation of gold price in the
international market.
ANALYST VIEW: First of all the probability of people investing in this scheme will be very less if the
the interest rate is maintained at 1% or 2% which is very less, instead if the rate of interest is increased to
7% or 8% then people can come forward and the interest rate can be revised periodically depends upon the
gold piece in the international market.
Secondly, few people might be interested in melting their gold and others may not. So the interest rate
variation can be kept i.e. people who are melting their gold will get little bit higher interest rate then people
with lower interest rate. Such a provision can make a big difference if government pays attention to the
mentality of an average Indian. Like mentioned above, Indians see gold not as a mere investment but more
as a symbol of their status.
In most Indian households, especially in southern states, gold ornaments are passed on from generations to
generations as a family asset, closer to their heart. Parting with gold, by selling or pledging, is perceived as a
social ignominy. It is a desperate step taken by an average Indian household in cases of extreme distress. So
if the following issues are taken into consideration then the scheme can go for a hit.