Government explores routing gold monetisation through jewellers after bank scheme’s weak record

Why in the News

The government is in talks with jewellers on a gold monetisation route in which jewellers accept household gold and the deposit is held in a demat account, with interest paid on the value deposited. The bank based Gold Monetisation Scheme of 2015 mobilised only 38 tonnes by March 2025 against household holdings placed well upwards of 20,000 tonnes, so the redesign turns on who households trust with their gold rather than on the return offered.

How would the proposed jeweller led gold monetisation route work?

1. Point of deposit: A depositor would take physical gold to the nearest jeweller rather than to a bank branch.
2. Record of holding: The scheme would be implemented through demat accounts, in the same way as shares, and the gold deposit would be reflected in the depositor’s demat account.
3. Return to the depositor: The depositor would earn interest on the value of the gold deposited.
4. Role of the jeweller: Jewellers would assume a key role in mobilising gold, becoming the contact point that banks occupy in the existing scheme.
5. Stage of the proposal: Discussions with large industry players have been constructive and a scheme could be announced soon.

What is a demat account?

1. Definition: A dematerialised, or demat, account holds securities in electronic form with a depository, removing the need for a physical certificate.
2. Application here: Holding a gold deposit in a demat account makes the claim transferable and tradable in electronic form, which physical gold in a bank vault is not.

Why is the government revisiting gold monetisation now?

1. Currency pressure: The exchange rate is under pressure from several factors at once.
2. Fuel prices: Elevated fuel prices following the West Asia crisis have widened the import bill.
3. Equity market sentiment: Investor concerns about the domestic stock market have weighed on capital inflows.
4. Gold imports: Elevated gold imports are the third source of pressure, with imports reaching $71.98 billion in 2025-26 against about $35.02 billion in 2022-23, per Ministry of Commerce and Industry data.
5. Industry signal: The chairman of the All India Gems and Jewellery Domestic Council stated that the government has communicated that it is serious about the proposal and has assured implementation as swiftly as it can be done.

What did the bank based scheme of 2015 achieve?

1. Mobilisation record: The scheme launched in 2015 mobilised just 38 tonnes of gold by March 2025, according to government data.
2. Scale of the untapped stock: There is no official estimate of gold held by Indian households, and experts place the figure significantly upwards of 20,000 tonnes.
3. The identified failure point: Families are more comfortable dealing with their family jewellers on matters concerning gold and silver, and that comfort is missing when banks play that role.
4. The stated design change: The big shift in the current proposal is moving the collection point beyond banks, per the President of the India Bullion and Jewellers Association.

Components of the Gold Monetisation Scheme, 2015, along the deposit lifecycle

What would monetisation at scale do for the economy?

1. Value of a partial mobilisation: Monetising just 10 percent of the gold held would be worth around $400 billion, according to a part time member of the Economic Advisory Council to the Prime Minister (EAC-PM).
2. Comparison with foreign capital: India’s gross foreign direct investment is about $80 billion, so that gold would be equivalent to five years of foreign direct investment inflows.
3. External account effect: Locked up gold, once monetised, can make India a trade account surplus nation.
4. Consumption and investment effect: The change would increase domestic consumption and force companies to invest more.
5. Savings channel: Investment depends on either domestic or global savings, and adding frozen domestic savings to liquid savings alongside continuing foreign capital would make a much larger pool available for investment.

Why does routing gold through jewellers solve one problem and create another?

1. The trust problem is real: Households deal with a family jeweller across generations, and the bank counter never acquired that standing, which is the single clearest explanation for 38 tonnes in ten years.
2. The proposal is described as a win-win only in theory: The depositor earns interest and the system unlocks idle metal, and both outcomes depend on the intermediary honouring the deposit.
3. Supervision moves to a lightly regulated node: A bank accepting a deposit is a regulated entity under banking law, and a jeweller accepting gold is not supervised in the same way.
4. Purity assessment shifts: In the bank route, purity is established at a certified Collection and Purity Testing Centre, and a jeweller led route puts assaying and the customer relationship in the same hands.
5. The demat layer is the safeguard being relied on: Holding the claim electronically creates a record of the deposit, and it does not by itself secure the physical metal held by the collecting jeweller.

Challenges to gold monetisation in India

1. Sentimental and social value of gold: Household gold is largely ornamental and passed down, so melting it for a deposit is resisted regardless of the interest offered. e.g. wedding jewellery in most Indian households is treated as inalienable rather than as a financial asset.
2. Competing use as loan collateral: Households increasingly pledge gold rather than deposit it, since a loan preserves ownership of the ornament. e.g. gold backed loans reached about Rs 5.4 lakh crore by June 2026.
3. Low return relative to price appreciation: Interest of a little over two percent is negligible against expected gold price gains. e.g. the Medium Term Government Deposit paid 2.25 percent while gold prices rose several fold over the scheme’s life.
4. Fear of tax scrutiny: Depositing undeclared gold exposes the holder to questions on the source of the holding. e.g. income tax rules on unexplained investments deter deposits of inherited and undocumented holdings.
5. Thin collection infrastructure: The number of certified collection and purity testing centres and refiners is small relative to the geography. e.g. large parts of rural India have no Bureau of Indian Standards certified assaying centre within reach.
6. Loss of the ornament itself: The deposit requires the ornament to be melted into standard gold, which is irreversible. e.g. antique and regionally distinctive designs cannot be recovered once assayed and melted.
7. Bank incentive problem: Banks earn little from accepting and deploying gold deposits, so branch level effort has been minimal. e.g. the medium and long term components were discontinued from 26 March 2025 after weak uptake.

Conclusion

The government is in talks with jewellers on a monetisation route in which household gold is deposited with a jeweller, held in a demat account and paid interest, after the bank based scheme of 2015 mobilised only 38 tonnes by March 2025 against holdings placed above 20,000 tonnes. The redesign correctly identifies trust in the family jeweller, rather than the return on the deposit, as the binding constraint, and it moves the collection point to an intermediary that is not supervised like a bank. Discussions are described as constructive and a scheme could be announced soon; the source states no announcement date.

Foundational Context: Gold in India’s Economy

1. Consumption scale: India is among the world’s two largest consumers of gold, alongside China, and imports almost all the gold it consumes.
2. Household stock: Indian households are estimated to hold upwards of 20,000 tonnes of gold, which is larger than the official reserves of most central banks.
3. External account weight: Gold is consistently among the top items in India’s import bill after crude oil, and gold imports reached $71.98 billion in 2025-26.
4. Duty sensitivity: Import duty changes on gold move the split between formal imports and smuggling, which is why duty rates are treated as a customs enforcement issue as much as a revenue one.
5. Financialisation objective: Public policy on gold has one consistent aim, which is to shift household savings out of physical metal into financial instruments backed by gold.

Laws and Rules Governing Gold in India

1. Bureau of Indian Standards Act, 2016: Provides the statutory basis for standardisation and for mandatory hallmarking of precious metal articles.
2. Hallmarking Regulations and the HUID: Require every hallmarked gold article to carry a six digit alphanumeric unique identification number, traceable to the certified hallmarking centre.
3. Foreign Trade (Development and Regulation) Act, 1992: Empowers the Central government to set the import policy for gold, including the channels and agencies through which it may be imported.
4. Customs Act, 1962 and the Customs Tariff Act, 1975: Provide for the levy of import duty on gold and for confiscation and penalty in cases of smuggling and misdeclaration.
5. Foreign Exchange Management Act, 1999: Governs the permissible modes of gold import and the treatment of gold in cross border transactions.
6. Securities and Exchange Board of India (Vault Managers) Regulations, 2021: Regulate the vault managers who store the underlying gold against Electronic Gold Receipts traded on stock exchanges.
7. Gold (Control) Act, 1968: Restricted private holding of gold bullion and was repealed in 1990, which is what allowed the later deposit and monetisation schemes to be built.
8. Income-tax Act, 1961: Governs the treatment of unexplained investments and the tax exemptions specifically extended to deposits under the Gold Monetisation Scheme.

“[2016] What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?
1. To bring the idle gold lying with Indian households into the economy.
2. To promote FDI in the gold and jewellery sector
3. To reduce India’s dependence on gold imports
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3