Soon, MMTC to auction Rs 1,700 cr worth of gold from monetisation scheme

Of the 7 tonnes of gold collected under GMS, 6 tonnes are slated to be auctioned

The government has given its green signal to MMTC to begin the process of auctioning gold collected under the much-hyped and poorly responded-to gold monetisation scheme (GMS). So far, over 7 tonnes of gold is estimated to have been collected under the scheme. Of that, MMTC is expected to auction 6 tonnes, valued at Rs 1,700 crore at current prices.

The Union finance ministry has cleared the auction policy. Indications are that the 6 tonnes of gold, mostly collected from temple trusts and households, will be available to MMTC for auction. "MMTC will soon initiate the process for auction and it will take about three weeks to conduct the auction. The release of gold to the market will help reduce import dependency to that extent," said an official privy of the matter.

Demand equivalent to the gold auctioned is expected to impact domestic price and premium as the season is lean at this time. However, the fall in import will ease forex outflow to the extent of the quantity of the auction. Though the auction is open to all, jewellers are mainly expected to participate in it. The bullion desk from various banks may also participate in buying gold and lending it to jewellers, however, few may do so.

According to the policy, the gold received from people and temple trusts under the GMS for medium- and long-term deposits will be auctioned by the agency notified by the government, which is MMTC, and the sale proceeds will be credited to the government’s account held with the Reserve Bank of India (RBI).

At present, the government is paying interest to depositors through banks but gold mobilised is lying un-utilised and has been adding to the unnecessary cost. The money that will be raised by auction will be treated as government borrowing but initial cost will be 2.5 per cent per annum interest plus one-time commission paid to banks. 

However, the official quoted above explains that while the short-term gold deposits will go towards manufacturing Ashok Chakra-embossed India Gold coins by MMTC, the medium- and long-term deposits will be put up for auction. Those depositors, households, and institutions, wanting to retrieve their gold after the term of their respective deposits will be returned the due quantity of gold. "The gold auction will bring in money for the government and banks on which they will be earning interest. At the time of maturity of deposits, if any customer wants to take back gold, the government or banks can give it back to them by procuring gold from the market at that point of time," he said.

Even if the market price at the time of maturity is much higher, it will not impact overall cost of government borrowing as gold's share in total borrowing is insignificant.

The scheme, which was launched in November 2015, offers investors annual tax-free interest of up to 0.6 per cent for short-term gold investments (up to three years), 2.25 per cent for the medium term (5-7 years), and 2.5 per cent for the long term (12-15 years). The interest is denominated in gold. The central bank maintains the gold deposit accounts (denominated in gold) in the name of the designated banks that will, in turn, hold sub-accounts of individual depositors.

The next move on the GMS front, according to sources, will be from the finance ministry, which will step up discussions with stakeholders on how to rope in temples and trusts that are sitting on huge piles of gold in a big way.

Compared to GMS, gold sovereign bonds have seen success and, so far, sold bonds worth 17-18 tonnes of gold or around Rs 5,400 crore.