15 Jul The Gold Ecosystem in India – Success and Failures
The Gold Ecosystem in India – Success and Failures – Today Current Affairs
Gold has a very important place not just in the cultural milieu in India, but also in the economy. It is a commonly held perception that marriages in India are incomplete without gold jewellery. This close relationship with gold may be viewed not just from the perspective of tradition but in economic terms as well. So, government thought of bringing a gold scheme to tap this underlaying potential asset of India.
Today Current Affairs
Salient features of the Gold Monetisation Scheme :
- The scheme will replace the prevailing gold deposit scheme, which started in 1999.
- Minimum deposit at any one time shall be gold (bars, coins, jewellery excluding stones and other metals). There is no maximum limit. This gold will then earn interest based on gold weight and also the appreciation of the metal value.
- Time period: The designated banks will accept gold deposits under the short term (1-3 years) Bank Deposit (STBD) as well as medium (5-7 years) and long (12-15 years) term government deposits.
- All scheduled commercial banks are allowed to implement this scheme and are also free to fix interest rates.
- Depositors can also make premature withdrawal of their deposits, subjected to a minimum lock-in period and penalty to be determined by individual banks.
- All residents Indians can invest.
Recent Efforts by the RBI and the government : The Hindu Analysis
- Reserve Bank of India has allowed central and state governments and entities owned by them to deposit gold under its Gold Monetization Scheme.
- Furthermore, charitable institutions have also been made eligible to deposit gold with banks.
Performance of the scheme : The Hindu Analysis
The scheme has got lacklustre response largely because of
- Psychological issues like gold are perceived to be more useful than any other asset.
- Structural deficiencies like low interest rates (2-3%) offered and unaccounted money will bring questions.
- Lack of social engineering because most of the gold is in form of jewellery and carries a lot of sentimental value. Moreover, it allows women to get some sort of control over ownership and inheritance.
Recommendation to mainstream the use of gold : The Hindu Analysis
- Examine the rate of interest being offered as well as the lock-in period.
- 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. The Hindu Analysis
- To incentivise collection of gold, the commission that is being offered to commercial banks 2.5% — 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.
Recommendation of the Niti Aayog Panel of the Gold Ecosystem : The Hindu Analysis
The major recommendations of this Committee, evolved through the above process, are structured into five key focus areas.
- These are Make in India in Gold
- Financialization of Gold
- Tax and Duty Structure
- Regulatory Infrastructure and Skill Development
- Technology Upgradation
Thus, gold can serve as a very important source of not only psychological security but also economic activity there by enabling the earning of profit and carrying new entrepreneurial adventures.