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Insights into Editorial: Why the gold monetisation initiative is failing to enthuse Indians


Insights into Editorial: Why the gold monetisation initiative is failing to enthuse Indians 





Nearly 18 months after it was first launched, the gold monetisation scheme is yet to find many takers. In response to a Lok Sabha question, the government revealed that till mid-February this year, the scheme has led to deposits worth only 6,410 kg of gold since it was launched, less than 2% of the annual imports of the yellow metal in 2016.


What is gold monetisation scheme?

Launched to curb India’s massive gold imports, which contributes significantly to India’s trade deficit, the scheme allows a bank’s customers to deposit their idle gold holdings for a fixed period of time in return for an interest in the range of 2.25% to 2.50%, and redeem it on maturity either in the form of gold or its rupee-equivalent amount.


What was expected out of this scheme?

Indian households (and temples) collectively own 20,000 tonnes of gold, a figure that is equivalent to the combined amount of gold held by the central banks of the US, Euro area and China. The government hoped that its initiative will help monetize a significant chunk of such gold holdings, which would then be melted and sold/lent to jewellers (and other users of gold), to reduce India’s dependence on imports.


Performance of the scheme:

So far, the response to the scheme seems to have been extremely tepid. Gold imports still account for more than one-fourth of India’s trade deficit and the country remains the largest importer of gold in the world despite having ceded the title of the “largest consumer” to China in the last few years.


Reasons for poor of the scheme:

The reasons for the lacklustre response of GMS are manifold and vary from structural issues, and deficiencies in design and dynamics related to economics of gold consumption in India.

  • The reasons need to be contextualised in structural disadvantage where gold is perceived to be more useful than any other asset, as it can be simultaneously used to indicate social status, stored, transferred inter-generationally and, increasingly, even pledged.
  • Many households are unwilling to park their gold in banks because of the low interest rates on offer. 2-3% interest on gold not deemed attractive by many.
  • Nearly three-fourth of India’s gold stock in held in the form of jewellery and carries a lot of sentimental value. There is also a gender aspect to it, as gold in the form of jewellery allows women some sort of control over ownership and inheritance. Given this aspect, many households might prefer private schemes, which allow them to get back the gold in form of jewellery as opposed to the government’s scheme which offers cash or solid gold.
  • Also, it is difficult for gold purchased with unaccounted money to ever become part of official economy, since it invariably leads to questions about how the gold was acquired?


What needs to be done?

  • The Gold Monetisation scheme design has to examine the rate of interest being offered as well as the lock-in period. Bonds can be made more attractive by linking the tenor with interest rates, more dynamically. This will make it attractive for high net-worth investors and money managers who may be interested in taking calculated risk on price while earning additional returns.
  • The government should also actively extend the campaign to households—away from the focus on temple trusts—maybe through the use of vernacular press and electronic media.
  • To make the scheme market-friendly, assaying could also be assigned to select jewellers, especially branded chains, to ensure presence in at least all districts.
  • To incentivise collection of gold, the commission that is being offered to commercial banks—2.5% including handling charges—could also be offered to select jewellers.
  • Finally, and most importantly, it is necessary to undertake household-level surveys to determine the attitude of households towards gold in different parts of India, and then focus on a strategy to collect gold under the scheme.



Gold monetisation scheme is a progressive measure introduced by the government for optimum utilisation of gold by the investors and also towards reducing India’s current account deficit. However, for the scheme to be successful, the government has to identify the gaps and correct them at the earliest.