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 introduced three 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. This was purely a business decision taken by most banks to cover their operational cost which involved the cost of checking, melting, refining and storage of gold jewellery deposited by the customer in the GDS. As a result, in GDS, retail participation was almost nil. The newly introduced GMS, has brought down the minimum investment of gold to 30 grams, revamped the process so as to reduce time consumption, enhanced the process of realisation of investment and so on. The banks were also given added privileges for running the scheme such as the gold collected being used partially for CRR etc. However, the GMS is still to take off and has only seen interest from a few temples. So what stops the GMS from succeeding? When examined in depth, there still remain certain challenges for the operators of the scheme. Currently the GMS although run by banks, are to be assisted by the refineries and assayers, as prescribed by the Government. This requires a bank, a refiner and an assayer (CPTC unit) to tie up under a tripartite agreement and carry out the scheme. However, problems have arisen when there is a disagreement between the refiner and the assayer. While assayers are small units, mostly without proper books of accounts, neither banks nor the refiners are willing to take the chance in case of a mishap in future. Furthermore, banks are not comfortable in tying up with CPTCs due to lack of any credible information about the books of the CPTCs.
Operational issues around GDS is only one side of the problem. Apart from this the age old problem of end use of gold collected still persists. While a solution to this could be deployment of the collected gold in Gold (Metal) Loan (GML) to the jewellers, it has been discovered that jewellers prefer outright purchase (which means import, again!!) to GML which turns out to be costlier than outright purchase While operational issues can be addressed slowly but steadily, the end use of gold collected through GMS is more difficult problem to solve.
Last but not the least, the India Gold Coin (IGC) which was launched by the Honourable Prime Minister himself, amid much fanfare last year, hasn’t received a thumbs up yet. While the customers are more than eager to buy these coins, it is still a mystery as to why all banks and financial companies or for that matter even jewellers are yet to start selling it. Although, as per recent reports MMTC has tied up with two banks to sell the IGC but this is insufficient. The success for IGC lies in increasing the number of vendors so as to make it popular among the citizen. The circulation of these coins are bound to reduce the affinity towards Swiss gold coins thus reducing imports.
The dream of monetising gold cannot be achieved by one single entity. The Government needs to understand that all the related entities be it banks and financial institutions, assayers and jewellers, refineries or for that matter even the Government and regulatory authorities must work together in a cohesive manner for these schemes to become successful. Hence, it is only advisable to look beyond personal gain and loss work in tandem for successful monetisation of gold, which will eventually lead to everybody wins situation. As the current Government’s motto goes, ‘Sabka Saath, Sabka Vikas’ it is quite obvious that in this very case the Government does need a ‘sabka saath’ for ‘sabka vikaas’ or at least for the ‘vikas’ of monetisation of gold.