Gold Monetisation - Where Have We Reached?

Arindam Goswami 08th Apr 2016

In 2014, the newly elected Government, realising the potential of domestic stock of gold, decided to introduce gold related schemes that would unlock the idle yellow metal lying in private lockers.With the objective to mobilise gold held by retail and institutional investors in the country, the Hon'ble Finance Minister of India in his budget speech of 2014-15 introducedthree new gold related product i.e. the Gold Monetisation Scheme (GMS), Sovereign Gold Bond Scheme (SGBS) and the India Gold Coin (IGC), a sovereign gold coin that would be minted in India and by Indian refineries.

The SGBS saw a tremendous interest among investors on its launch and garnered a subscription of 915.95 kg worth INR 246 Crore in its first tranche. The second tranche surpassed the initial one collecting a further subscription for 2790 kg worth INR 726 Crore. The gold bonds were issued in denominations of 5 gram, 10 gram, 50 grams and 100 grams. The tenure of the bonds has been kept between 5-7 years while the interest rate will be calculated on the value of gold at the time of investment. The scheme has been primarily targeted at the new age young investors who use gold mostly as a hedging instrument. The SGBS offer the same benefit without actually buying physical gold and in the process also reduces the burden on import of the yellow metal.

While the SGBS has created a space among the investment portfolio of Indians, the GMS is yet to make a mark among the people. While the GMS was expected to be the flagship product of gold monetisation it simply turned out to be old wine in new bottle. The GMS was expected to replace the erstwhile Gold Deposit Scheme (GDS) which had been operating since late 90's but failed to gain popularity among investors and customers due to its flawed operating and business model. For example the GDS, although not mandated by Reserve Bank of India (RBI) policy or Ministry of Finance, had a minimum requirement of 500 grams that had to be deposited by the customer to take part in GDS. Th...

Note: Views expressed in this blog are those of the author.