Niti Aayog panel mulls ways to revive failed gold monetisation scheme

Options include involvement of jewellers, getting over the reluctance of banks and loans from GMS deposits

Efforts are on to revive the government's Gold Monetisation Scheme (GMS), a proven failure in the two years since its launch.

The aim of the GMS was to mobilise the gold lying idle with households, estimated by the World Gold Council to be about 25,000 tonnes or almost half the country's gross domestic product. However, the scheme hasn't even been able to attract 10 tonnes since its launch by the Prime Minister in November 2015. And even this has mostly been from temples, not homes. Here again, several temples had only renewed deposits maturing under the earlier scheme of the year 2000, and had not macde fresh deposits.

Suggestions on how to revive GMS are being discussed by a panel formed by the Niti Aayog. These include involving jewellers as collection centres, addressing issues that banks have been facing and using domestically available gold for giving metal loans to jewellers for domestic sales.

According to information from The Association of Gold Refineries and Mints, around 10 refineries and 50 gold collection centres (hallmarking centres) are licensed to accept gold under the scheme and consumers keep making inquiries. "However, we are not able to accept gold as deposits, as the operating banks are not ready at their end to accept these for a variety of reasons," said James Jose, the Association's secretary.

Banks, says an industry official, are not finding it viable to accept gold deposits less than 500 grams from investors. Even for bulk deposits, the interest for medium-term and long-term ones is yet to be reimbursed by the government, which is yet to prepare the operative guidelines on such reimbursement. So, bankers want the government to clarify how it wants GMS to progress.

Sanjeev Agrawal, chairman of the Gems & Jewellery Committee at business chamber Ficci, said: "Jewellers can be involved in GMS, as they enjoy customers' confidence; customers might be ready to part with their jewellery as deposits under GMS. Jewellers certified by the Bureau of Indian Standards should be allowed to act as agents of banks to collect deposits under the scheme; their acknowledgement could be used by banks for opening and crediting depositors' account with that much gold."

Agrawal adds: "We propose that jewellers be allowed to accept such deposits and that the gold can be lent back to jewellers as metal loans at pre-approved rates; eligibility criteria could be fixed by the respective banks. This will make the scheme practical for banks, as handling a smaller quantity of gold is routine for jewellers, but might not be viable for banks."

Banks are, however, reluctant to support this. Another suggestion is to allow jewellers to accept gold as deposits and pay interest to depositors, using that gold for jewellery and then returning it to depositors on agreed terms. This mechanism is akin to the way they accept cash deposits. Agrawal says around 140 tonnes of gold jewellery are sold annually to jewellers, for encashing or buying new jewellery.

James Jose, secretary, Association of Gold Refineries and Mints, observes: "The GMS deposit interest rate is over two per cent, which is costlier if the same gold is to be lent back to jewellers. From international sources, such loans are available at 1.5 per cent. To tackle this, metal loans from overseas could be made permissible only to exporters, which might motivate banks to push GMS."

Another suggestion Jose has given to the Ministry of Finance is to motivate banks to push GMS if they are allowed to lend gold to domestic jewellers for more than one year against collateral. And, metal loans shall be denominated in gold weight and repaid in gold weight.