Centre unveils two gold schemes for deposits, sovereign bonds

New Delhi, Sept 9: In a bid to tap the vast amount of idle gold with people and put it to productive use, two schemes were on Wednesday unveiled by the Indian government –– one on physical deposit of the metal against its rupee value on paper and the other for issuing sovereign bonds.

Both schemes seek to address the people’s affinity towards gold and encourage them to either park their idle gold assets at desigted agencies or buy government–guaranteed gold bonds. Both these also entail an interest component. The deposit scheme will also have a loan scheme for jewellers.

"The long–term objective which is sought through this arrangement (gold deposit scheme) is to reduce the country’s reliance on the import of gold to meet domestic demand," Fince Minister Arun Jaitley told reporters after a meeting here of the union cabinet under Prime Minister rendra Modi.

"The (sovereign gold bond) scheme will help in reducing the demand for physical gold by shifting a part of the estimated 300 tonnes of physical bars and coins purchased every year for investment into gold bonds," Jaitley added.

Under the bond scheme, up to 500 grams worth of bonds per annum can be bought by an individual with lock–in of five–to–seven years, bearing appropriate interest to protect from volatility. The other scheme calls for people to deposit their gold with authorised agencies for an interest.

According to the World Gold Council, an estimated 22,000–23,000 tonnes of gold is lying idle with households and institutions in India. The annual imports amount to around 850–1,000 tonnes valued at $35–$45 billion.

"The Gold monetisation scheme will benefit the Indian gems and jewellery sector which is a major contributor to India’s exports. In 2014–15, gems and jewellery constituted 12 percent of India’s total exports and value of gold items alone was more than $13 billion," an official note said.

"The risk of gold price changes will be borne by the Gold Reserve Fund that is being created. The benefit to the government is in terms of the reduction in the cost of borrowing, which will be transferred to the Gold Reserve Fund," the note added.

How will the gold deposit scheme work? A person with minimum of 30 grams can go to any of the 331 desigted centres to test his gold and deposit it –– against which a certificate will be issued. The gold can be in any form, bullion or jewellery, and a savings account will be opened.

With the certificate, an account akin to a fixed deposit scheme can be opened, bearing an interest. Redemption of short–term deposit can be done in cash or gold –– but not in the jewellery form in which it was origilly deposited –– and for medium– and long–term options, it can only be in cash.

The gold so collected will be sent to refiners. A parallel gold loan scheme will operate, wherein a jeweller can get the metal on loan for a short period. The gold can also be used for auctions, issuing coins, and to shore up the central bank’s gold reserves. Tax exemption will come with it.

The sovereign gold bond scheme will be denomited in grams of gold and payable in rupees. A cap on bonds has been fixed at 500 grams per person per annum. The bonds will be in a dematerialised or paper form in quantities of 5, 10, 50, 100 grams. Redemption will be made in rupee alone.

These bonds will be sold by post offices, banks, non–banking firms, upon commission.

HIGHLIGHTS
* Minimum amount of gold set at 30 grams
* The 331 desigted centres to test and collect gold from customers
* Gold can be in any form, bullion or jewellery
* A Gold savings account to be opened by customers
* Account to be denomited in grams of gold
* Centres to transfer gold to refiners
* Refiners to keep the gold in ware–houses unless banks want to hold it themselves
* Refiners to be paid a mutually–decided fee by banks
* Customer will not be charged.