1. Summer Internship Report
On
“Analysis of Gold Monetization Scheme and its impact on the Indian
Economy”
Submitted in partial fulfillment of the requirement of PGDM
Under the guidance of
Faculty mentor Industry mentor
Dr. Meena Bhatia Abha Seth
Associate Professor Senior Director
Birla Institute of Management Technology Federation of Indian Chambers of Commerce and Industry
(FICCI)
Submitted by
Minesh Agrawal
14DM126
PGDM 2014-16 (FINANCE)

2. EXECUTIVE SUMMARY
The relationship with gold in India seems ambivalent. For consumers, gold is a prized asset which is cherished both
as an adornment and an investment. For the government, gold is a major contributor to the current account deficit and
it has become a challenge now that needs to be addressed (as soon as possible). Over the years, govt. has been trying
to reduce the amount of gold imports by various policies and restrictions. When the efforts to cut down the gold
demand had failed, govt. has decided to control it by supply side and introduced Gold Deposit Scheme (GDS) in
1999. The main objective of that scheme was to bring unproductive gold in the market which would increase
domestic supply of gold and it will lead to reduce the gold imports and CAD as well. This scheme was also failed to
meet the objectives and brought only 15-20 tonnes of gold in the market where total household gold holdings were
18000-20000 tonnes.
In the recent budget for FY 2015-16, Finance Minister, Mr. Arun Jaitley, has announced a new gold monetization
policy of India, which will have three components: Gold Monetization Scheme (GMS), Sovereign Gold Bonds, and
Gold Coins. This project focuses on the Gold Monetization Scheme (which is a new version of previous Gold
Deposit Scheme) and aims to address those policy issues which have arisen with GDS by looking at each
stakeholder’s point of views. Furthermore we suggest some policy recommendations for upcoming GMS which
would address most of the issues with the old policies. Our major policy proposals to the government are:
 Revise the policy structure and attributes
 Mandatory non-disclosure agreement
 Setup of Infrastructure and licensing
 Incentivize the Banks
 Gold Exchange
 Standardization of gold
This report assumes that if the proposed recommendations are taken into the upcoming scheme there would be high
acceptability of scheme from each stakeholder and reduction on CAD would be optimum.
The report is applying statistical analysis on two parts:
1) Impact on the Current Account Deficit through GMS
2) Relationship between Gold Imports and Macroeconomic variable
To include important variables in the model, this report refers various research studies and evaluates the secondary
data of the variables.

3. This project analyzes the patterns in the gold demand, gold-imports, gold-exports and gold prices
for last ten years. It elucidates that investment purchases of gold are being rational about returns
on the gold where consumption purchases don’t have any significant relationship with price. To
know the relationship between gold import demand and macroeconomic variables, this report
applies statistical analysis on the historical data. Empirical findings show that gold imports don’t
have significant relationship with the major macroeconomic variables and all of these variables
explain less than 50% of variations in the gold imports.
Another part of study tries to analyze the impact of the Gold Monetization Scheme on the Indian
economy. For determining the impact, the study uses some scenarios under which the effect of
GMS has been observed.
These statistical tools have been used to analyze the time-series data - Augmented Dickey Fuller
test, Regression Analysis and Scenario Analysis. This statistical study shows that under the each
scenario, during the initial years of the launch, the reduction in the CAD would be very low, but
after 2-3 years of policy launch (when required infrastructure would be developed) it will
decrease CAD by significant amount (more than 10%) and would be able to save billions of
dollars for the country.