One wonders why no one in modern India thought of a gold coin with an Indian motif. For 70 years Indians have been buying foreign gold coins and bars. So it was a pleasant surprise when Prime Minister Narendra Modi announced that gold coins bearing the Ashok Chakra would be launched a week before the Dhanteras festival, which is considered an auspicious day to buy gold, no matter how small the quantity. The coins will weigh five and 10 gms. Following this will be the launch of the Gold Monetisation Scheme, Sovereign Gold Bonds and 20-gm gold bars, all possibly by Diwali. The GMS will replace the 1999 Gold Deposit Scheme where the minimum gold to be deposited was a hefty 500 gms. Under the GMS the minimum deposit is 30 gms of 995 fineness. While Mr Modi did a wonderful job of trying to convince the people to put their idle gold (estimated at 20,000 tonnes owned by people and temples) into the GMS for security and monetary returns, the nitty-gritty of implementation are daunting.
The gold will have to be certified by the Bureau of Indian Standards at the collection and purity-testing centres. Deposit certificates will then be issued by banks and the interest on the deposit will be denominated in gold, which is a great idea. While this looks simple, there are critical issues at the ground level. A detailed paper by a working group of industry chamber Ficci has pointed out that there are just 331 BIS-certified assaying and hallmarking centres in India, inadequate for people to turn up in huge numbers with their gold. More importantly, the minimum melting charge for up to 100 gm of gold is Rs 500 per lot, which can go up to Rs 13,400 for 900-1,000 gm.
This seems on the high side because if a person offers 50 gm worth at Rs 1,30,000 and pays Rs 500 melting charges, or 0.4 per cent, it will take away a good part of the interest of one per cent or 1.5 per cent. In the case of jewellery, the person will have to forego about 10-15 per cent of the gold value when it is melted. All these issues will have to be considered by Mr Modi and the RBI if this laudable initiative of a GMS is to be successful. They look like they can override the good points of this scheme, which will also receive favourable tax treatment. The government has been making various attempts to wean away households from buying and hoarding gold and people investing in gold as this had led to huge gold imports that sent the country’s current account deficit askew. It is therefore imperative to make the GMS a success.
