PM Modi Launches 3 Gold Schemes

In a bid to rein in the gold imports and attract investors away from physical assets, PM Modi launches 3 Gold Schemes: 

  1. Gold Coin and Bullion scheme
  2. Gold Monetisation Scheme
  3. Gold Sovereign Bond Scheme

#1. India Gold Coin and Bullion scheme

  • The coin will be the first ever national gold coin minted in India and will have the National Emblem of Ashok Chakra engraved on one side and Mahatma Gandhi on the other side.
  • Initially, the coins will be available in denominations of 5 and 10 grams.
  • The Indian Gold coin is unique in many aspects and will carry advanced anti-counterfeit features and tamper proof packaging that will aid easy recycling.

#2. Gold Monetisation Scheme (GMS), 2015

  • Scheme allows you to earn some regular interest on your gold and save you carrying costs as well.
  • It replaced the existing Gold Deposit Scheme, 1999.
  • It offers option to resident Indians to deposit their precious metal and earn an interest of up to 2.5 per cent.

Who can make deposits?

  • Resident Indians (individuals, HUF, trusts, including mutual funds/exchange traded funds registered under Sebi norms) can make deposits under the scheme.
  • No maximum limit for deposit under the scheme and the metal will be accepted at the Collection and Purity Testing Centres (CPTC) certified by the Bureau of Indian Standards.

#3. Sovereign Gold Bond Scheme

  • Investors can earn an interest rate of 2.75 per cent per annum by buying paper bonds.
  • Sovereign Gold Bonds will be issued in multiple tranches subject to the overall borrowing limits.
  • The bond would be restricted for sale to resident Indian entities and the maximum allowable limit is 500 grams per person per year.
  • They can be used as collateral for loans and can be sold or traded on stock exchanges


Few more things to know

  1. Minimum investment in the bond shall be 2 grams.
  2. The bonds can be bought by Indian residents or entities and is capped at 500 grams.
  3. The RBI has fixed the public issue price of sovereign gold bonds at Rs 2,684 per gram.
  4. The borrowing through issuance of Bond will form part of market borrowing programme of Government.
  5. The Bonds will be eligible for Statutory Liquidity Ratio (SLR).

Why was there a need for such schemes?

  1. To lure tonnes of gold from households into banking system.
  2. According to the World Gold Council, an estimated 22,000-23,000 tonnes of gold is lying idle with households and institutions in India.
  3. Huge gold imports pushed India’s current account deficit (CAD) to a record $190 billion in 2013, prompting the hike its duty on imports to a record 10 percent.
  4. The government wants to reduce the reliance on gold imports over time.

But, will these schemes succeed in bringing down Gold imports?

  1. Experts who believe, investors will still find 8 percent offered for bank deposits as more attractive.
  2. The present scheme will not bring out even 20 tonnes of gold.
  3. Investors fear that the tax department will hound them questioning the source of gold.

Okay! But tell me how good are they from investing point of view?

  1. A section of experts feels the interest rates being offered (on both deposits and bonds) are attractive.
  2. For people who have gold as an investment asset, it is a good opportunity to gain some interest out of it.
  3. Gold is always written off as a zero-yield instrument compared to equities, which give dividend and fixed income which gives fixed interest.

From now on, gold will not only be an instrument of security but will also give earnings and will become part of nation building.


 

Published with inputs from Arun

 

Any doubts?


  1. Profile photo of Siddhartha Singh Siddhartha Singh

    The minimum permissible investment in the SGB scheme will be 1 gram of gold and NOT 2 grams.

Gold shines: on reducing India’s demand for gold

Note4Students:

Mains Paper 3: Indian Economy issues related to growth, development

Any news related to Gold is very Important for  both economy and UPSC since Historically Gold has been responsible for high current account deficit in India and UPSC has asked questions on Gold Monetization scheme in both prelims and mains.

From UPSC perspective following things are important:

Mains level: Read carefully reasons why People are investing in Gold and Way Forward points


Context

PM’s long-drawn-out effort to counter Indian’s desire for gold does not seem to give good results

Why?

1. India’s gold imports witnessed a huge jump in April, increasing threefold to $3.85 billion from $1.23 billion in April 2016

2.This suggests that Indian demand for gold is robust and that the government will have to continue its efforts against Gold imports impact on the country’s trade deficit

PM’s Effort

  1. As part of his efforts to push Indians to decrease their gold purchases, he had introduced the gold monetisation scheme that aimed to reduce gold imports by using deposits to increase domestic supply.
  2. But, as of early 2017, the amount of gold that had been deposited under the scheme was less than 1% of overall gold demand in 2016

Why is investing in gold not good for Economy?

  1. Indians favour ivestment in gold over other income-generating financial assets
  2. Due to this, savings are wasted on a dormant metal instead of being invested in productive business activities which can help Indian economy to grow

Why are people investing in Gold?

1.Capital conservation is an important reason for investment in gold by Indian households

2.The metal’s predominant utility as a hedge against inflation, which protects the average investor lacking sophisticated financial acumen from a depreciating rupee, cannot be ignored

3.Gold’s lure cannot be explained only as a reserve for illicit wealth or tax evasion

Way Forward:

1.Indians need access to better and more formal financial market instruments

2.Any significant strides on this front will require structural reform of the financial sector that encourages more competition to spur financial innovation and access

3.Until such time, gold is likely to remain a favourite asset, with gold imports adversely impacting India’s external trade deficit.


Back2basics

All about Gold schemes

source

 

 

Indian scientists unveil home-grown gold standard

Note4Students

Very Important. The love of UPSC for first things happening across country is an open secret. Read all points mentioned in news carefully.

From UPSC’s perspective, the following things are important:

Prelims Level: All important facts related to this new gold standard.

Spinoff: Sovereign Gold Bonds, Gold Monetisation scheme and other such related schemes become important in light of this news. Read about them.

Mains level: Fodder from this news could be quoted while writing your answer(s) on Make in India and India’s gold imports, which have nearly remained same even after various government steps to reduce their quantity.


News:

  1. India now has its own standard bar of gold that is 99.99% pure and can be used to verify the purity of gold sold in shops
  2. Despite India being one of the largest markets for gold, goldsmiths so far depended on imported reference gold bars to check the purity of their biscuits, coins and jewellery

What is it?

  1. Called the Bharatiya Nirdeshak Dravya (BND 4201), the bar, weighing 20gm and with the dimensions of a ‘Parle-G’ biscuit (in the words of a scientists associated with its development), will mean that Indian jewellers will no longer need to import gold bars to check the purity of ornaments
  2. Last November, the India Government Mint (IGM), a unit of Security Printing and Minting Corp of India Ltd, signed an agreement with the Bhabha Atomic Research Centre (BARC) and CSIR-National Physical Laboratory (NPL) to develop the first gold standard

Role of the stakeholders:

  1. The NPL is the repository of standard units — such as the kilogram, the second, the centimetre — in India and provides calibration services
  2. While the bars will be made by the IGM, technical aspects such as measurement would be done by the BARC and certifying the purity of the bars would be the responsibility of the NPL
  3. The Department produces Standard Gold Bars of standard fineness and purity of 10g, 50g, 100g, 500g & 1000g denominations

What this could mean to India?

  1. Development of this reference material indigenously will add to the Make in India campaign and will save foreign exchange as well as minimise dependency on foreign countries  

India gold demand may touch up to 950 tonnes by 2020: WGC

  1. Source: A World Gold Council (WGC) report
  2. Economic growth and greater transparency within the country’s gold market will boost demand for the yellow metal up to 950 tonnes level by 2020
  3. India’s gold demand has fallen sharply in the past, but recovered subsequently, and attempts by the authorities to clamp down on the yellow metal failed as it is too intimately ingrained in the society, mentions the report
  4. It is likely that the impact of demonetisation will have a behavioural impact too
  5. Demonetisation is also boosting large jewellery retailers and they will continue to grab a larger share of the market
  6. Over time, consumers will move away from cash towards digital payments, and organised players will benefit from this trend
  7. This change in market dynamics will result in more transparency and a better deal for consumers, protecting them from shady practices like under carating

Note4students:

Not very important but note the expected trends post-demonetisation given here. Can be useful for mains.

Government announces third round of Gold Bond Scheme

  1. News: The govt has announced the application window for the third tranche of the Sovereign Gold Bond scheme
  2. The bonds will be sold through banks, Stock Holding Corporation of India Ltd. and designated post offices
  3. Reason: It comes at a time when prices of gold are increasing
  4. Objective: To divert investment in the gold bonds instead of gold itself, which will help in reducing India’s substantial gold imports

Read more about Sovereign Gold Bond Scheme.

Gold bond scheme picking up: Das

  1. The second tranche of the Sovereign Gold Bond (SGB) scheme has attracted applications for gold worth Rs.726 crore.
  2. The scheme is gradually picking-up amongst the investors with increase in awareness and more clarity about the provisions of the scheme.
  3. The idea behind the SGB scheme is to wean away those who use gold as a store of value.
  4. It encourages them to invest in the gold bonds as opposed to the yellow metal itself.
  5. The bonds are issued by the Reserve Bank of India on behalf of the govt.

Government clears two gold schemes

The government plans to exempt capital gains made at the time of redemption of gold under the Gold Bond Scheme.

  1. Two schemes are the Sovereign Gold Bond Scheme and the Gold Monetisation Scheme.
  2. It could bring an estimated 20,000 tonnes of idle gold lying with Indian consumers into the economy and also reduce India’s dependence on gold imports.
  3. In Gold Monetisation Scheme, gold in any form can be deposited with banks for a period of one to 15 years. This gold will earn interest and redemption will be at the prevailing market value at the end of the tenure of deposit.
  4. Sovereign Gold Bond Scheme is aimed at customers looking to buy gold as an investment.
  5. While the gold deposited with banks under the monetisation scheme will be allowed to be sold to jewellers in order to boost domestic supply.

The new gold monetisation scheme

  1. Gold Monetisation Scheme is fairly a good move to reduce GoI India’s gold import.
  2. Under the scheme, either individual or institutions can keep their gold deposits with the bank and bank in-return gives them interest.
  3. The RoI (rate of interest) is yet to be decided, but experts say it should be around 5 to 6%.
  4. Similar scheme was launched in 1999 but could not yield the desired result due to inherent problems.


:( We are working on most probable questions. Do check back this section.







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