Posted at 1:39 PM , on May 28, 2015
How effective will this scheme eventually be?
The draft Gold Monetization Scheme has been put up by the Ministry of Finance for public comments. Principally, it is different from the 1999 scheme in 2 ways. Firstly, the minimum entry point has been lowered from 500 gm to 30 gm. Second, the setting of interest rates has been left to the discretion of the banks.
Costs are still high
That was the bane of the old gold monetization scheme and that problem continues. If you add up the cost of hallmarking, assaying, purifying, storage it adds up to nearly Rs.1400-1500. That means even if you deposit 60 grams of gold, your first year interest will be eaten away by costs. That could be a major disappointment. Consequently, the reduction of entry level to 30 grams may not really add any practical value. Continue reading
Posted at 2:23 PM , on March 4, 2015
In the hype and enthusiasm surrounding the budget, most budget analyses focused on the postponement of GAAR, cut in corporate taxes and the thrust on renewable energy. But the real game changer could be the announcement of the Gold Monetization scheme. And, if the scheme catches on, its impact at a macro level, on household savings and the current account deficit could be huge. But let us understand why…
Digging out the domestic vaults…
India is currently the largest consumer of gold, closely followed by China. Historically, Indian households have always preferred the safety and physical assurance of gold and real estate. Financial assets like equities, bonds and mutual funds have never found great favour with Indian households. Indian households are estimated to hold gold to the tune of close to $950 billion. That is roughly 50% of the annual GDP of India. You can just imagine the impact if that gold comes into the productive mainstream. But how is the scheme going to do this? Continue reading