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Government nod for gold bonds, new monetization scheme

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India is one of the world’s largest markets for gold jewellery. Indian household and other trusts are holding over 20,000 tonnes of Gold which makes it a non-productive asset.

But why can’t we start using our wealthy asset to make money? In order to make this happen it needs the conversion of gold into productive asset. So our Government announced to give nod to Gold Monetization Scheme (GMS) and Sovereign Gold Bond Scheme as announced in Union Budget 2015-16.

Through these schemes its value will be unlocked and will be circulated in financial investments. The new scheme consists of the revamped Gold Deposit Scheme (GDS) and a revamped Gold Metal Loan (GML) Scheme.(Monetization: Converting the country’s gold holdings into cash)

Key points of Gold Schemes:

Gold monetization schemeSovereign Gold Bond Scheme
Gold can be deposited in the bank in any form (bullion or jewellery).Certificates issued by Government which can later be encashed for money or physical gold
Allows individuals to deposit minimum 30 grams of gold with banks.Annual cap under this Scheme is 500 gram per person.

(Denominations – 5, 10, 50, 100 grams)

Deposits can be short term (1-3 years), medium term (5-7 years) and long term (12-15 years).These bonds would be issued for 5-7 years.
Gold is exempted from tax.Bonds are not exempted from tax.
Purity test will be done by melting the gold.No check on quality of gold is done.
Depositors will earn interest on their gold saving accounts.On maturity, the investor will receive equivalent of market value of gold in “rupee terms”.

Facts about Gold Schemes: 

  • Introduction of GMS replaced 1999 Gold Deposit Scheme (GDS) and Gold Metal Loan (GML) scheme.
  • GMS reduce dependency on gold Imports. It will facilitate the availability of gold as raw material on loans from the banks.
  • Lower import of gold will help to control the current account deficit.
  • Interest rates on short term deposits will decided by banks and medium or long term deposits will decided by government in consultation with RBI.
  • Collection, Purity Verification and Deposit of Gold will be done under revamped GDS.
  • Out of the 331 assaying and Hallmarking centres, those will meet criteria specified by Bureau of Indian Standards (BIS) will be allowed to act as Collection and Purity Testing 1 Centres for purity of gold for the purpose of this scheme.