The Government of India yesterday released a draft of the Gold Monetisation Scheme, a proposal earlier mooted by Finance Minister Arun Jaitley in the Budget Session of Parliament this year. The draft is open to comments from stakeholders till June 2, 2015.

The avowed objective of the Government in promoting the scheme is to mobilise the vast reserves of gold lying with  households and institutions. 

The idea is to reduce the reliance on import of the metal over a period of time. By doing this, the government also aims, as it says, “to provide a fillip to the gems and jewellery sector in the country by making gold available as raw material on loan from the banks”.  

Due to the vast infrastructure required to support the scheme, the draft envisages introducing it in stages and first offering it only in select cities.

The minimum requirement for an individual deposit has been proposed at 30 gms so that even small depositors can avail of the scheme.

The gold – either bullion or jewellery -- is to be submitted to what is termed as “Purity Testing Centres” under the scheme, or in other words Hallmarking Centres. After due testing and other processes (which attract a fee), with the consent of the holder taken at each stage, the gold is melted and the purity and quantity of gold is assessed. “If the customer agrees to deposit the gold, then he will be given a certificate by the collection centre certifying the amount and purity of the deposited gold,” the draft states.

This certificate is then to be taken to an authorised bank against which a Gold Savings Account will be opened for the certificate holder. Interest, it is envisaged, will accrue after 30/60 days.  The minimum term for the account is one year and then in multiples thereof. Like fixed deposits there is a procedure for redemption as well, and the account holder has the option of getting back the deposited value in cash or gold; however the choice  must be specified at the time of opening the account. 

“Both principal and interest to be paid to the depositors of gold, will be ‘valued’ in gold. For example if a customer deposits 100 gms of gold and gets 1 per cent interest, then, on maturity he has a credit of 101 gms,” states the draft. However, the rate of interest applicable has been left to the banks.

The highlight of the scheme for individuals is that they are likely to be exempt from capital tax and income tax.

The gold so collected may be held either by refineries or banks.

It has been proposed that the  banks “may be permitted to deposit the mobilized gold as part of their CRR/SLR requirements with RBI”, however this aspect is still being examined by the Government. 

It is envisaged that the banks may commercially utilise the gold mobilised to raise foreign exchange, convert it to coins and sell them, trade it on domestic commodity exchanges or loan it to jewellers through a Gold Loan Account.   

Interest raised through providing gold loans should  cover interest to be paid to depositors;  cover other expenses incurred through the process ; as well as include the profit margin of the bank, the draft advises.