Gold Monetization Scheme (GMS), Discuss.
India has around 20,000 tons of gold lying in households, temples and other institutions, that�s the same weight as around 3300 adult elephants which is worth around 60 lakh crore rupees ($767 billion). The big idea behind gold monetization policy is that India produces around no gold and imports massive amounts of it- about 800 to 1000 tons a year-this leads to a big trade deficit. And if, there would have been some way to channelize the idle gold lying with households and temples. That would go a long way in helping cover up this trade deficit. The way Indian government has found to cover this deficit is gold monetization scheme. The government wants to unlock the earning potential of this domestic treasure trove by this scheme.
Although, it seems to be a revolutionary scheme but, there are some loopholes and problems found, when taken a closer look. These may prove to be major roadblocks in the progress of this scheme.
The draft issued regarding this scheme that was issued by the Indian government states that, people will take the gold for testing. Their jewelry will be melted and stripped of stones, and then tested for purity. After the purity and amount of actual gold will be confirmed, then they could either open a metal account or take their melted gold back. Even, the rates of interest provided is not going to be more than 3% per annum.
This scheme more beneficial to temples than to normal households. Although, the government has set a minimum limit of 30 grams to attract households. Moreover, the government exempts the holders of metal accounts from taxes such as capital gains, wealth tax and income tax. But, another problem is that the owners might have to show the certificate of ownership. Now, this may be a serious problem in a country like India because most of the households have the jewelry that they got from their ancestors.
Even if, the government has announced a scheme which looks so good. It says that the money will be paid after 30-60 days of opening the account. It has a minimum tenure of 1 year just like a fixed deposit. It also can be withdrawn in between if any emergency occurs. The jewelers can also get gold as loan in their metal accounts instead of buying it from market. The gold collected by the banks could further be used it to lend it to other companies who can use the metal and the banks get revenues from what the formers may earn. This is still a question that how much percentage of gold could be lent by the banks and how much of it should be retained back in case the customers come for their gold deposits one day.
Although, the temples contain more than half the gold lying in the country but, the gold in the households is not a small amount and the government should try to bring those people to open metal accounts because with the current loopholes we don�t sense it coming from middle class households.
On the whole, a proper, efficient and strong infrastructure is necessary for the smooth working of what seems to be a revolutionary, unique idea when the loopholes are filled. Moreover, in a country like India where we almost daily have face to face with scams and corruption this is very difficult to work properly. If it is to be used for the prosperity of the nation then it must be made efficient, smooth working and corruption free.
On the end, as we Indians always keep on hoping that something good will happen so we just hope for something good from this scheme of gold monetization.
Prateek Kumar
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