Gold can earn interest





The new gold monetisation scheme could unlock its value

With an estimated holding of around 20,000 tonnes, Indian households are one of the largest hoarders of gold on earth. But this gargantuan wealth is just lying idle without earning any return. This year's budget has proposed a way to unlock its potential by introducing gold monetisation schemes.

One option is a sovereign gold bond, which is an alternative to physical gold. The next option is a Gold Deposit Scheme. Under this, depositors will earn interest on their metal accounts. The scheme is also open to jewellers who can take loans against their metal accounts. This will replace the existing gold deposit and loan schemes offered by SBI. The gold deposit scheme was a non-starter because the interest rates offered was very low. The investor got 0.75% per year for a period of 3 years and 1% if he kept the gold for 4-5 years. Besides, investors suffered on account of making charges and purity issues.

Though the details of the new scheme are not yet out, industry players are hopeful that the terms and conditions will be attractive for depositors. The government may come out with a better scheme this time because it might have learnt a lesson from the failure of the earlier scheme.

How will these schemes impact the domestic and international gold markets? New schemes, if successful, will help to take the hidden Indian gold to the open and help to recycle it. By increasing the availability of domestic gold, the new scheme should bring down our gold imports. Since India is one of the largest gold importers, any significant fall in Indian imports can bring down the international gold prices.