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Gold Monetization Scheme: Issues and Challenges

India has approximately 22,000 tonnes of gold at an estimated value of $1 trillion but that gold is neither traded nor monetized. According to the All India Gems and Jewellery Trade Federation, India is the world's second-biggest gold consumer which had imported around 900 tonnes in the year 2014 and an estimate of around 1,000 tonnes in the year 2015. India is likely to see a jump of 11 per cent in imports of gold. Gold is the second-largest import item for India after petroleum. Higher gold import bill adversely affects the country's current account deficit. The Budget 2015-16 had proposed to launch Gold Monetization Scheme (GMS) to channelize country's idle gold assets and bring it to the use of the industry to reduce gold imports. This scheme primarily aims to mobilize gold held by households, temples and institutions in the form of jewellery, gold bars, gold coins etc., to make gold work productively. The accumulated physical gold by the banks will be converted to gold bars of 995 fineness and will either be lent as gold loans to jewellers, sold or auctioned to the Metals and Minerals Trading Corporation. (MMTC). GMS thus aims at channelizing the idle gold holdings to the banking system leading to households earning a nominal interest on gold deposits, reducing dependency on gold imports and consequent savings in foreign exchange. This paper is an attempt to study the applicability of the scheme to households and temples in India. It also tries to analyse the issues and challenges in implementation of the scheme. The study found that the operational rules of the scheme is not user-friendly.