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Gold monetisation may curb imports

Sovereign gold bonds and India-made gold coins with Ashok Chakra embossed on those also announced

Business Standard  |  New Delhi 

Finance Minister has proposed a measure that seeks to monetise hitherto considered an unproductive asset. The long-standing demand to bring with Indian household in circulation, to reduce imports and control the current account deficit, has been accepted. Also, Jaitley has announced sovereign bonds and India-made Ashok Chakra-embossed coins, to replace the need for import.

The Monetisation Scheme seeks to replace both the present deposit, run by those like State Bank of India, and loan schemes, under which metal loans are provided by gold-importing banks. While the operational details of the new scheme are yet to be worked out, Jaitley said: The new scheme will allow the depositors of to earn interest in their metal accounts and the jewellers to obtain loans in their metal accounts. Banks/other dealers will also be able to monetise this Allowing dealers to moneitise is seen as a major boost..

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While the rate of interest and cost of loans under the proposed scheme is yet to be known, industry experts fear there will be additional cost, as to be monetised will have to be melted first and converted into bars to give as metal loan to jewellers. Currently, imported is given as loan and no such cost is incurred. (City of Gold)

Apex industry body, the All-India Gems and Jewellery Trade Federation (GJF), had for the past 18 months been recommending the government introduce such a scheme to unlock domestic with individual households. In fact, Indias only bullion refinery certified by the London Bullion Association (LBMA), MMTC Pamp, had proposed a deposit scheme to fetch three-four per cent of annual returns, instead of and jewellery lying idle in lockers.

India, one of the worlds largest consumers of gold, imports as much as 800-1000 tonnes each year. Though stocks of in India are estimated to be over 20,000 tonnes, this is mostly neither traded nor monetised.

Sudheesh Nambiath, senior analyst (precious metals), GFMS, however, says: There has been a thrust on long-term policy to reduce dependence on imported gold, and some have the infrastructure in place to take this ahead. So, steps like the monetisation scheme will be a successful approach a year or two down the line.

Jewellery traders, however, saw the new rule making furnishing Permanent Account Number (PAN) mandatory for all sales and purchases exceeding Rs 1 lakh in value, as a dampener. They said the new limit, much smaller than the current Rs 5 lakh, would likely affect sales.

To encourage individual consumers to deposit gold, the finance minister proposed to issue Sovereign Bonds as an alternative to purchasing/investing in physical To be issued by the central government, these will carry a fixed rate of interest and be redeemable in cash in terms of face value of at the time of redemption. The central government will not have to repay in at the time of redemption; an amount equivalent to will have to repaid and the customer who deposited could use the amount to buy physical if he so wishes. If the government hedges its price risk in sync with the bonds, the price risk for such bonds could be avoided.

Jaitley also suggested refiners to work on developing an Indian cold coin carrying the This will help reduce the demand for coins minted outside India and also help recycle available in the country. The move will help assess real import of in the country and lay more stress on strengthening the attempts to unlock more domestic gold, said Haresh Soni, chairman, GJF.

The scheme, once implemented, will boost domestic gold-refining business, as monetised or deposited will be refined and converted into standard bars. Welcoming the move, Rajesh Khosla, managing director of MMTC-PAMP, offered to develop a Coin. He said: As Indias first and only LBMA-accredited refinery for and silver, MMTC-PAMP will be keen to partner with the government for this initiative.


  • Allowing dealers to monetise is seen as a good scheme, but may take some time for the required infra to be built
  • PAN will have to be furnished for sales and purchases above Rs 1 lakh in value
  • Sovereign bond, to be issued by the Centre, is a new financial instrument
  • FM has proposed Ashok Chakra-embossed Indian coins for physical investment

First Published: Sun, March 01 2015. 00:37 IST