Gold monetisation faces significant challenges: Report

World Gold Council said it is important that realistic expectations are set. Despite the significant stock of gold, little of it will be monetised anytime soon.

GN Bureau | January 25, 2017


#gold monetisation   #world gold council   #gold refinery  


The outlook for gold monetisation is interesting. The flaws associated with the first gold monetisation scheme – most significantly the minimum deposit size – are not present in the latest iteration and there are certain structural developments that may help this latest scheme flourish, said the latest report of the World Gold Council.
 
First, there are more bank branches and more people have bank accounts than they did when the first scheme was launched.
 
Second, India’s infrastructure has improved. It has an accredited gold refinery, which can play an important role in this scheme by promoting trust in the gold flowing through the monetisation  ecosystem. And the launch of the Indian Gold Coin and the New Hallmarking Act will provide a trusted gold product and standard for use by the banking system.
 
But it still faces significant challenges. For the scheme to be a success it needs to address the key issues we have highlighted: trust, ease of use, incentives and infrastructure. If any of these are overlooked, the scheme may struggle.
 
It is important that realistic expectations are set. Despite the significant stock of gold in India, our view is that little of it will be monetised anytime soon. It will take time to build the necessary infrastructure, for banks to develop and market the right products, and for customers to respond. Once that infrastructure is in place greater volumes of gold can be monetised; we envisage up to 25t being monetised within the next two to three years.
 
 
The report added: “We expect gold loans to continue to play a significant role in India, especially in rural communities. The make-up of the sector will evolve as the government presses ahead with its financial inclusion policies and the formal sector plays a greater role. Money-lenders and pawnbrokers could lose market share to banks and gold loan companies. Within the formal sector, because of tighter regulations governing gold loan companies, we can see a subtle shift in favour of banks.”
 
World Gold Council said that India has a huge stock of gold; some 23,000–24,000t in total, the majority of which is with households. And it is incredibly valuable. Based on the 2015 average price it was worth US$800bn. To put this in context, Apple’s market capitalisation at the same time was around US$600bn; two of India’s largest listed companies, Reliance Industries and Tata Consultancy Services, were quoted at around US$50bn each.
 
In the late 1990s, the Government tried to capitalise on this gold – to draw it out from households and into the financial system – with the launch of the Gold Deposit Scheme (GDS). This allowed individuals to deposit gold at banks in return for interest. In addition, the scheme was exempt from capital gains, wealth and income tax.
But it did not work. Between 1999 and 2015 only around 15t was mobilised. The big stumbling block was the minimum deposit, which at 500g, prevented many individuals and households from accessing the scheme.
 
In the 2015 union budget, finance minister Arun Jaitley announced plans for a new, updated monetization scheme.
 
 
 
 
 
 

Comments

 

Other News

PM Modi leaves for G7 Summit in Italy

In his first foreign visit after taking oath of office for the third time, prime minister Narendra Modi Thursday evening left for Italy to participate in the G7 Outreach Summit. “At the invitation of Prime Minister Giorgia Meloni, I am travelling to Apulia region in Italy to participat

Some market talk, some gossip – learnings over tea at RBI

A Fly on the RBI Wall: An Insider’s View of the Central Bank By Alpana Killawala Rupa Publications, 248 pages, Rs 595  

Coalition politics not expected to impact India’s foreign policy

Prime minister Narendra Modi has strived incessantly to bring laurels and much needed recognition for the nation since May 2014 when he was sworn in as the head of state. The poser which can be deliberated upon is this: What will be the consequential impact of the new era of coalition politics which confro

New govt`s first decision pushes for farmer welfare

The BJP-led NDA government has started its term with its first decision relating to farmer welfare. Narendra Modi took charge of office as prime minister of India for the third time on Monday, a day after he and his colleagues were sworn in by the president of India. In his fi

Narendra Modi takes oath for third term

Narendra Modi made history Sunday evening as he was sworn in by president Droupadi Murmu for a third successive term. Modi thus becomes the first prime minister since Jawaharlal Nehru to have comptered two full terms and beginning a third consecutive term. In the swearing-in c

Modi appointed PM for the third time

Narendra Modi was Friday appointed the prime minister for a historic third time, as president Droupadi Murmu invited him to form the next government. The swearing-in ceremony for the new council of ministers will take place on Sunday. “The President, having satisfied herself on the bas

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter