The Finance Minister proposed to develop an alternate financial asset, a sovereign gold bond, as an alternative to purchasing metal gold. The bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the bond.

India imports as much as 800-1000 tonnes of gold each year. Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded, nor monetized, the Finance Minister said.

Proposed Gold Monetisation Scheme will replace both the present Gold Deposit and Gold metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account. Banks and other dealers would also be able to monetize this gold.

Indian cold coin

The Government also proposed to commence work on developing an Indian gold coin, which will carry the Ashok Chakra on its face. Such an Indian gold coin would help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.

Industry reacts

Suvankar Sen, Executive Director, Senco Gold said the proposed Gold Monetization Scheme will increase a avaiablity of the yellow metal in the domestic market and help jewellers. "Moreover, there is a possibility that the gold prices may come down whenever imports comes down which would enable the end user to save on cost while buying gold jewellery", he added.

The policy announcements on gold today are a step towards making gold a part of the larger financial system, said the Managing Director of World Gold Council, P R Somasundaram before adding “this budget has been exceptional for gold.”

While stating that the demand for gold cannot be wished away by supply curbs, he said the Council has been stressing the need for introduction of a structured and customer friendly gold monetisation scheme.

The introduction of India branded gold coin is expected to have a healthy impact on the country’s gold sector, provided the trade is liberalised without artificial curbs and higher duties.

Recent policy decisions were a pointer on these lines, suggesting the need to go beyond duty cuts and artificial regulatory curbs. There is therefore an imperative need to nurture the savings mindset through gold accumulation, use the same to enhance savings and put it to work for the economy.

The country would now be able to set in place a measured monetisation framework for gold from the existing stocks in private hands worth over $1 trillion.

“The monetisation scheme will drive orderly recycling and enhance transparency, as it has the potential to translate gold savings into economic investments. Standard India gold coins will ensure gold availability aligned to customer preferences and will help curb the unofficial market,” the WGC MD said.