Gold Monetization Scheme
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Posted Date : 06-Mar-2015 , 10:22:11 pm | Posted By RATHI
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Gold Monetization Scheme
As you know, the Govt. initiated a scheme in 1996 for securitization of Equity Shares, Debentures, Bonds and MF Units whereby National Securities Depository was floated by the NSE. This was followed by BSE which floated CDSL. This one measure of dematerialization of shares and other securities, which were hitherto being held in physical form, revolutionized the entire stock market in the Country. As a result, not only the stock trading and investment has become easier but helped companies raise resources faster. It also helped generate huge revenues for the Govt. in the form of Securities Transactions Tax. Further, it helped generate huge Foreign Exchange Reserves as the FIIs were encouraged to invest in the Country’s Shares & Securities.
Similarly, in a significant announcement in the Budget 2015, the Finance Minister, Mr Jaitley announced a Gold Monetization Scheme that will help investors earn interest on the gold they own. The new scheme will allow the depositors of gold to earn interest in their metal accounts, Mr Jaitley said, adding that it will also help mobilize the idle gold in the Country and put it into productive use. It is estimated that about 20,000 tons of gold, worth over Rs. 60 Lac Crores, is held in the Country. Banks and other agencies would also be able to monetize the gold deposited. Though the details of the scheme are yet to be announced, this one measure will go a long way in in bringing out Gold which stashed in the households. As we know, we Indians have a penchant for amassing Gold and huge amount of this Gold Reserve is held for ages together. ( The amount of Gold held in the Temples like Tirupati Devsthanam and the Padmanabha Temple is worth hundreds of Lacs of Crores rupees ). Once this Gold or even part of it comes out and is monetized, the money so blocked in unproductive use will come into circulation and would give tremendous push to the Economy, as has happened in case of dematerialization of Shares and Securities.
The Finance Minister has announced certain measures, in his maiden full Budget, to contain circulation of black money, more particularly in Real Estate Transactions. He did not categorize the Gold Monetization Scheme under that category. However, this scheme is likely to have huge impact on circulation of black money. As we know, huge amount of black money or unaccounted money gets converted into Gold as holding huge amount of cash is otherwise not feasible and is quite risky also. Lots of such gold is likely to come out in the market once this scheme of monetization becomes successful.
The Finance Minister has also announced a Sovereign Gold Bond Scheme in the Budget to reduce India's import of gold as well as put to work the vast amount of gold deposits held in the Country. This would be introduced as an alternative to purchasing physical gold. The bond or financial instrument will carry a fixed rate of interest and when investors sell the bond they will get the value of the gold. In such schemes, investors buying gold don't get the metal in physical form. Instead, they get a paper or certificate issued by the Government certifying that they have bought a certain amount of gold.
Such Bonds offer a good alternative for investors who don't want to buy physical gold. If one has the belief that gold prices will go up, he can just put the money in gold bonds. The beauty of this instrument is that when the price of Gold goes up, the bond price also goes up by the same amount. These gold bonds will also offer a fixed rate of interest. These bonds are designed to appeal to people buying gold for purely investment purposes, who may or may not want gold jewelry or who wish to have gold at a future date. Once the Bond Scheme settles, there may be derivative options available for such bonds adding to their attraction.
If the scheme becomes successful, it could help reduce the import of gold into the Country. India imports as much as 800-1000 tons of gold each year, draining away precious foreign exchange. It is estimated that such Gold Bond Scheme could help reduce India's Gold Imports by as much as $10 billion (Rs. 60,000 Crores at Rs. 60 per US Dollar). While this all is happening, the days may not be very far when the Govt. brings a Scheme to monetize the properties also.
By :-
CA Gokul B. Rathi, Pune
Mail : gokulrathi007@yahoo.co.in
M : 98500 41311
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