Only 21 tonnes mobilised under gold monetisation scheme in 8 years

Gold loan market expected to shift to organised sector: WGC report

Only 21 tonnes of gold have been mobilised in the last eight years under the gold monetisation scheme (GMS) which was announced by the Government of India in November 2015.

This could be considered as a failure as the scheme has undergone several changes with a revamped GMS announced in April 2021 to improve collections.

This figure was released by the World Gold Council (WGC) on Wednesday in its report titled ‘Gold Investment Market and Financialisation, in India gold market series’. According to the WGC, India’s household holding stock of gold is estimated to be between 23,000 and 25,000 tonnes (valued at $1.4 trillion).

India imported 651 tonnes of gold in the 2022-23 financial year (FY23) and the country’s import bill stood at $31.7 billion for the year. With widening current account deficit, it is high time for India to reduce gold import bill and WGC stresses upon popularising GMS to mobilise idle gold and channelise it for productive purpose by lending it to jewellers.

In November 2015, three schemes were introduced to reduce the import of gold and channelise idle gold lying with Indian households. Apart from GMS, sovereign gold bond scheme was introduced. So far, 110 tonnes worth bonds have been sold under the scheme. As a result, the demand for physical gold has been reduced to an extent which has resulted in lower import.

The government also came out with gold coins -- with the Ashoka pillar engraved in them – but was discontinued later.

GMS, though, has a huge potential to reduce import because gold mobilised under the scheme can be lent to jewellers as an option to import.

With gold always vulnerable to rising import duties in India, WGC report says, “Increased participation in GMS is perhaps the only long-term solution to mitigate the adverse impact of gold imports on India’s current account deficit.’ The report pointed out that a lack of awareness about GMS is a key reason for tepid response and hence educating consumers is the key.

Another important headwind is the psychological hurdle that comes with melting jewellery due to an emotional and cultural attachment of Indian women when jewellery is melted. Hence the council said, “The initial thrust of monetisation should therefore be on attracting retail bars and coins to place on deposit (these are not melted). It is also important to mobilise more gold from temple trusts, which tend to have large gold stocks.”

The report also highlighted the potential for revamping the gold market for collaterals. The market for the precious commodity has flourished with a total of 2,950-3,350 tonnes being used as collaterals.

About 60 per cent of this market remains unorganized even if the share of organised lenders has risen from 35 per cent in 2019 to 40 per cent in 2022. The report also says that the share of the organised sector in the gold loan market is expected to increase.

Govt slaps import restrictions on certain gold items
 

The government on Wednesday imposed import restrictions on certain gold jewellery and articles, a move which would help cut import of non-essential items. Now an importer would need a permission of licence for importing these products. However, the directorate general of foreign trade said that the restrictions will not be there under the India-UAE FTA.