Why in the News
India’s gold market is witnessing a structural shift as investment demand and gold backed loans grow rapidly, while jewellery demand declines. The trend has also highlighted the limited success of the Gold Monetisation Scheme (GMS), 2015 in mobilising idle household gold.
What is the Gold Monetisation Scheme (GMS), 2015?
- Objective: Mobilise idle gold held by households and institutions into the formal financial system.
- Mechanism: Individuals and institutions deposit physical gold with authorised banks and earn interest on the deposits.
- Challenges: Limited participation due to taxation concerns, sentimental attachment to gold and procedural complexities.
How is India’s gold demand changing?
- Overall Demand: Total gold demand increased 2% year on year to 282 tonnes in the first half of the year.
- Jewellery Demand: Fell 17.1% to 141.2 tonnes, among the weakest first quarter levels since 2000.
- ETF Investment: Gold Exchange Traded Funds (ETFs) recorded a net inflow of 20 tonnes in the first quarter.
- Bars and Coins: Demand rose 21.3% in volume and 105.5% in value during the first half of FY27.
- Price Rise: Domestic gold prices have increased more than fivefold over the past decade.
Why are households pledging gold instead of selling it?
- Collateral Preference: Households increasingly use gold as collateral for loans rather than selling it.
- Gold Loan Growth: Outstanding gold loan portfolios reached about Rs 5.4 lakh crore by June 2026.
- Retail Loans: Bank loans backed by pledged jewellery touched about Rs 4.3 lakh crore by February 2026.
- Limited Recycling: Despite record high prices, households continue to retain gold, resulting in low recycled supply.
- External Stability: Household gold holdings and central bank gold purchases have supported India’s external balance and moderated pressure on the rupee.
What are the concerns?
- Financial Stability: Rapid expansion of gold loans requires close regulatory monitoring.
- RBI Measures: Borrowers must fully repay principal and interest before the same gold can be repledged.
- Price Risk: A sharp decline in gold prices could affect lenders through lower collateral values.
[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