Incentives can prop gold deposit scheme: Somasundaram

Somasundaram P.R. (Photo Credit Business Today)
Somasundaram P.R. (Photo Credit Business Today)

By Aparajita Gupta

New Delhi:(IANS) India’s proposed gold monetisation scheme can prove a win-win for all stakeholders — government, people and industry — if it is incentivised and marketed well, even as the yellow metal will remain an attractive asset, according to the World Gold Council.

“The scheme will benefit industry as it will get some extra gold. The government can leverage it with recycling, transparency and more jobs, while customers will benefit hugely as it would keep gold as an attractive asset,” said Somasundaram P.R., the council’s India chapter managing director.

“Yet, in my opinion this scheme must be linked to dollar deposits, which when converted into the rupee equivalent, one will get that value. We have suggested that the government should strongly incentivise the scheme in the first few years,” Somasundaram told IANS in an interview.

He said gold monetisation scheme is essentially an organised way of recycling. Though recycling does takes place in India even now, it is done in an unorganised manner — when people want to sell gold. Monetisation scheme is like institutional pooling or savings.

After proposing it in the national budget in February, the finance ministry csme out with a draft of the monetisation scheme for opinion from all stakeholders in mid-mau. The final scheme is set to be unveiled soon, officials said.

The scheme proposes to allow people to deposit as little 30 grams of gold, get a certificate and earn interest. The objective is to mobilise gold, give a fillip to the gems and jewellery sector by making the metal available from banks on loan and reduce the reliance on imported gold.

Somasundaram said if the the government incentivise the banks then they will pass on more to the customers and will prove to be a big attraction. “Around a 3-percent interest rate will be very attractive for the customer, but it also has to be marketed very smartly.”

Global, 33-40 percent supplies come from recycling. In India, it acounts for 8-10 percent now. According to the council, the demand for yellow metal in India in 2015 was around 900-1,000 tonnes. Total gold imported in 2014 was 891.5 tonnes.

“Monetisation scheme says you don’t have to sell your gold, keep it with the bank. It is more transparent. For the government, it promotes recycling which means if in India’s gold demand grows, the additional supply can come from recycling,” Somasundaram said.

Like fixed deposit schemes one can withdraw the gold or jewellery deposited with the banks under the scheme and will get the gold, not the jewellery. At the time of maturity the metal will be replaced either in bar or coin form but not in jewellery form, he said.

“The interest is in gold terms, not in rupee terms. There’s a lot of miscommunications about it.”

According to stakeholders, in India, a third of any jeweller’s business is melting old jewellery for new. This means people are not averse to melt old jewellery. “They might as well keep it in the bank, earn interest on that,” said Somasundaram.

Giving the global example, he said among other countries that started a similar scheme, Turkey had started with it in 2010 and has so far has collected 250 tonnes of household gold.

But the counci’s India chief remained unperturbed by the the recent downslide in the gold prices, nor did he believe that gold could be losing its sheen as an investment tool.

“Any asset class can go through ups and downs, particularly at times like this, when there are extreme views. Short term factors could have affected gold price versus the dollar. Now, that should not be extrapulated beyond what it is,” he said.

“If you take last 20 years’ data, interest rates going up does not necessarily mean gold prices have to come down. It’s not the only factor to determine the price. Gold is a significant asset class and its supply cannot be increased at will. Gold has a self-balancing nature.”

Somasundaram said there was also nothing unusual about China’s recent sale of bulk gold. “Central banks across the globe have been net buyers for 17 consecutive quarters of more than 100 tonnes of gold.”

(Aparajita Gupta can be reached at

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