India Working Hard for Success of Gold Schemes

The two gold schemes recently introduced by the Indian government have received jaded response with Sovereign Gold Bonds (SGB) earning an initial collection of INR 246 crores and only 400 grams of gold deposited under the Gold Monetization Scheme (GMS).

The government intends to collect INR 15,000 crores by the end of March 2016 but the debutant offer of SGB has collected just INR 246 crores which is equivalent to 917 kg. or about 0.1% of the country’s annual consumption of gold of 820 tons.

In spite of the poor response to the scheme, the government has termed it as excellent. “The SGB received 63,000 applications for 917 kg. gold amounting to INR 246 crore in first phase. This is an excellent response for an innovative product,” Economic Affairs Secretary Shaktikanta Das said in a tweet.

However, the statement issued by the ministry appears to acknowledge the scheme might be faulty. “Founded on the feedback received from the stakeholders of the schemes, the government machinery would continuously monitor and review the progress of the schemes at the regular intervals and make essential changes, in order to increase the reach of the schemes,” it mentioned.

The industry leaders here point out that the price of gold, decided for the first auction at INR 2,684 per gram, was 2% higher than the prevailing market price which is enough to wipe out the benefit of the interest rate of 2.75%. They feel that the pricing should be dynamic with investors getting the ruling price on the day of allotment.

The GMS, which offers resident Indians to deposit their precious metal and earn an interest of up to 2.5%, has also attracted a lukewarm response. As on November 20, only 400 grams of gold were deposited under the scheme, Gem and Jewellery Export Promotion Council (GJEPC)’s Northern Region Chairman Mr. Anil Sankhwal said.

While the GMS aims to dig out household gold stocks of an estimated 22,000 tons, the SGB scheme would help shift part of the estimated 300 tons of physical gold bars and coins purchased every year for investment into the demat gold bonds. While the interest on the bonds is taxable, the capital gains are not.

Looking at the poor response generated by the GMS, the Reserve Bank of India (RBI) it is working on fine-tuning the scheme to make it more attractive. “We need some fine tuning (Gold Monetization Scheme),” Mr. Raghuram Rajan, the Governor of RBI says.

The industry leaders have urged the government to allow Bureau of Indian Standards (BIS) certified jewellers to act as collection agent for GMS and the finance ministry has readily accepted the suggestion. Currently, there are 3.5 lakh jewellers in the country, of which 13,000 are BIS-certified. BIS is expected to complete the registration of 55 numbers of collection and purity testing centres by the end of December 2015.

The government sources have also initiated talks with rich Indian temple trusts for bringing their vast stocks of gold into the financial system through the GMS. While it may be quite early to judge the schemes, the government machinery will have to do a lot of hard-work if it is to succeed in garnering INR 15,000 crore from the sale of SGBs and digging out substantial cache of the idle gold lying with Indians through GMS.

Posted by Suresh Chotai