Introduction of Gold Monetization Schemes

Gold monetization schemes approved by the Cabinet

Ques: Gold monetization schemes recently approved by the Cabinet is under this plan-

a. Modified gold deposit scheme
b. Modified Gold Metal loan scheme
c. (a) and (b) both
d. Modified gold bond scheme

Ans: c

Related facts:

  • 09 September, 2015 the Union Cabinet chaired by the Prime Minister, gave its approval for introduction of Gold Monetization Schemes (GMS), as announced in the Union Budget 2015-16.
  • The objective of introducing the modifications in the schemes is to make the existing schemes more effective and to broaden the ambit of the existing schemes from merely mobilizing gold held by households and institutions in the country to putting this gold into productive use.
  • The long-term objective which is sought through this arrangement is to reduce the country’s reliance on the import of gold to meet domestic demand.
  • GMS would benefit the Indian gems and jewellery sector which is a major contributor to India’s exports.
  • In fiscal year 2014-15, gems and jewellery constituted 12 per cent of India’s total exports and the value of gold items alone was more than $13 billion (provisional figures).
  • The mobilized gold will also supplement RBI’s gold reserves and will help in reducing the government’s borrowing cost.
  • The benefit to the Government is in terms of reduction in the cost of borrowing, which will be transferred to the Gold Reserve Fund.
  • The scheme will help in mobilizing the large amount of gold lying as an idle asset with households, trusts and various institutions in India and will provide a fillip to the gems and jewellery sector.
  • Over the course of time this is also expected to reduce the country’s dependence on the import of gold.
  • The minimum quantity of gold that a customer can bring is proposed to be set at 30 grains.
  • Gold Savings Account will be opened by customers at any time, with KYC norms, as applicable. This account would be denominated in grams of gold.
  • Collection and purity testing centres will send the gold to the refiners. The refiners will keep the gold in their ware-houses, unless banks prefer to hold it themselves.
  • The deposits under the revamped scheme can be made for a short-term period of 1-3 years (with a roll out in multiples of one year); a medium-term period of 5-7 years and a long-term period, of 12-15 years (as decided from time to time).
  • Like a fixed deposit, breaking of lock-in period will be allowed in either of the options and there would be a penalty on premature redemption (including part withdrawal).
  • The amount of interest rate payable for deposits made for the short-term period would be decided by banks on basis of prevailing international lease rates, other costs, market conditions etc. and will be denominated in grams of gold.
  • For the medium and long-term deposits, the rate of interest (and fees to be paid to the bank for their services) will be decided by the government, in consultation with the RBI from time to time.
  • The deposited gold will be utilized in the following ways:
  • Under medium and long-term deposit
    • Auctioning
    • Replenishment of RBIs Gold Reserves
    • Coins
    • Lending to jewelers
  • Under short-term deposit
    • Coins
    • Lending to jewelers
  • Tax exemptions, same as those available under GDS would be made available to customers, in the revamped GDS, as applicable.
  • The difference between the current borrowing cost for the Government and the interest rate paid by the Government under the medium/long term deposit will be credited to the Gold Reserve Fund.
  • A Gold Metal Loan Account, denominated in grams of gold, will be opened by the bank for jewelers.
  • The gold mobilized through the revamped GDS, under the short-term option, will be provided to jewelers on loan, on the basis of the terms and conditions set-out by banks, under the guidance of RBI.
  • When a gold loan is sanctioned, the jewelers will receive physical delivery of gold from refiners. The banks will, in turn, make the requisite entry in the jewelers’ Gold Loan Account. Interest received by banks: The interest rate charged on the GML will be decided by banks, with guidance from the RBI.

Reference:

http://pib.nic.in/newsite/PrintRelease.aspx?relid=126748