Second phase of gold reforms on govt's priority list, revamped GMS on cards

The second phase of gold reforms is on the government’s priority list and an action plan, prepared by the economic affairs department and commerce ministry officials while the country was in election mode, will soon be announced. The measures include a revamped gold monetisation scheme (GMS), treating gold as an asset class, setting up the gold board as regulator, and forming a domestic gold council as the policy advisory body, said sources.

The Budget session of Parliament is likely to discuss the gold board. A Bill for the Precious Metals Board of India Act, 2019, is ready and after the new Cabinet’s approval, it will be introduced in Parliament. The board has already started basic functioning under the finance ministry but its operations are not yet formalised. The gold board will be set up in line with regulators such as Sebi or the Forward Markets Commission, which was later merged with Sebi. According to sources, once the Precious Metals Board starts functioning, it will work on norms for a gold spot exchange, which will ensure that any gold trade above 5 gm goes through the online exchange for transparency and to track the end user. 

Along with the Bureau of Indian Standards, it will finalise good delivery norms, making gold refined in India acceptable globally.

The government is also considering making gold as an asset class, a source said. As on now, sovereign gold bonds are also an asset but when gold formally becomes an asset class, one can invest in it and on maturity, investors will receive the precious metal.

For this, banks and financial intermediaries will be asked to open gold metal accounts.

At present, banks open gold accounts in rupee terms. For example, current norms for the GMS suggest that gold should be deposited but on maturity, banks will return rupee equivalent of the gold value. As a result, many temples and even retail or high net worth individuals are not participating in the GMS. If gold metal accounts are opened, investors may buy gold digitally and ask the seller to transfer it in the GMS. This will open up new avenues to use idle gold for productive purposes.

Sebi allowed gold exchange traded funds to invest in gold they bought through the GMS and gold deposit schemes. A gold deposit scheme is also expected to be announced in the coming months where gold will be invested in any form and banks will give returns on it and give back the gold on maturity. This gold will be used for lending to jewellers who otherwise import it.

The GMS, which was announced three-and-a-half years ago, has not met with much success, with just 18 tonnes of gold being mobilised. Even banks are not taking interest. The government has now revised the whole scheme, which will be unveiled soon, said sources. Banks will be asked to complete all required formalities and, wherever possible, additional incentives will be provided to them.

The commerce ministry is expected to announce the setting up of a domestic council for gold in line with the Gem Jewellery Export Promotion Council. The council will be advisory in nature and will coordinate with different interest groups in the country.

The third and final phase of gold reforms, which is some time away, will see initiatives such as the setting up of the gold spot exchange and encouraging gold mining in India.

In the first phase of reforms, the government had focused on compliance measures such as making the permanent account number (PAN) compulsory for trades above Rs 2 lakh, discouraging cash deals, promoting digital/online transactions, streamlining gold imports, and introducing sovereign gold bond.