Higher interest rates can combat failing gold monetization scheme, suggest industry experts

The gold monetization scheme launched by the current government has not been able to draw the interest of customers in the last 18 months. On the other hand, the government doesn’t seem to be learning from the mistakes.


Industry experts believe that the low interest rates are to be blamed for the current situation. The idea in itself is good, but the execution has always been the problem. Apart from that, the gold loans offered by various banks and financial services are featuring better parameters. So, there is no reason for the people to earn small portions of interest, when they can avail a huge loan on their gold assets.


The gold monetization scheme is a deposit tool that ensures the mobilization of gold possessed by Indian families and various financial organizations. But, the government failed to market the scheme, as very few people are aware of it. The reason behind launching the scheme was to push gold as a productive and functioning asset instead of lying static inside a locker.  


The plan lets investors make Short Term Bank Deposits (SRBD) for 1-3 years and Medium/Long Term Government Deposits (MLTGD) for 5-15 years on 2.50% interest per annum. Only Indian citizens can avail this scheme, which accepts a minimum gold deposit of 30 grams in form of bullion, bar or jewellery.    


According to a survey that was conducted on 61,000 households, nearly two-thirds of the households did not prefer to deposit their gold holdings with banks and roughly the similar size believed that the interest rate given by the government was not enough.


Some experts also believe that the massive gold imports are equally responsible for India’s trade deficit. The scheme deposits were only 6,410 kg in 2016, which was less than 2% of the annual gold imports. In order to make a good amount of deposits, the interest rate needs to be increased by at least 6%. With the increase in interest rates, more and more gold sales will be induced, which will be profitable for the sector. This will also mean that the economy will be less dependent on gold imports.


Although the scheme was launched with good intention, it will be very difficult for the government to accept failure of the project. However, all is not lost, as far as the bullion industry is concerned. The sector can witness an increase in investment with a significant change in policies. But, the government will need to bring in consistency, when it comes to charting out new schemes for a prosperous time ahead.

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