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However, short-term bank deposits under GMS may continue at the discretion of individual banks, depending on their commercial viability, the note added.
Background of the Gold Monetisation Scheme
The Gold Monetisation Scheme (GMS) was relaunched in November 2015, around the same time as Sovereign Gold Bonds (SGB), to financialise gold as an asset class.
While SGBs allowed investors to buy “paper gold”, GMS was a gold deposit scheme, enabling individuals to store or sell their gold to banks.
Indian households are estimated to hold 30,000 tonnes of gold in the form of bars, coins, and jewelry. From an economic perspective, this gold is seen as sitting idle.
The government introduced GMS to make idle gold productive, integrate it into the formal economy, and reduce gold imports.
Under the scheme, households, institutions, and trusts were encouraged to deposit their gold for productive use.
How GMS worked
Gold deposited under GMS—whether in the form of jewelry or other assets—was melted and assayed by a Collection and Purity Testing Center (CPTC) before being converted into tradable gold bars.
Any impurities in the gold were deducted, and stones or studs from jewelry were returned. The final amount was then credited to the depositor’s gold account.
Upon redemption, depositors could receive their gold back in the form of bars or coins, with any fractional amounts converted to cash. The scheme provided an opportunity to earn interest on idle gold while saving on locker charges.
Why GMS did not succeed
Despite its objectives, GMS saw limited participation due to several challenges:
Emotional and cultural barriers: Indian households were reluctant to melt ancestral and personal jewelry due to sentimental and cultural attachments.
Cumbersome process: The lengthy procedure for testing gold and the limited number of testing centers made the process inconvenient.
Taxation and disclosure concerns: Depositors had to declare their gold holdings to earn interest, and the interest earned was taxable, discouraging participation.
Low awareness and outreach: Poor promotion and limited participation from banks meant that many potential depositors were unaware or uninterested in the scheme.
While GMS aimed to bring gold into the financial system, these barriers ultimately limited its success, prompting the government to discontinue medium- and long-term deposits under the scheme.
(Edited by : Anshul)
First Published: Mar 26, 2025 9:31 AM IST