[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]I[/dropcap]ndia is the 3rd largest consumer of Gold produced in the world, yet it has no say in its pricing. By announcing the Gold monetization scheme, Government of India has taken an excellent step in trying to harness the country’s yellow metal reserves. In true sense gold is known to be a dead asset. But it can be taken as a surety for loans. The banks profit from the interest payments. Additionally, if a depositor places gold in a bank, he/ she earns interest on it too. So it’s a win-win situation for both. However there is some work to be done to make the populace part with its prized possession.
As per Hindu religion, after marriage the bride gets ‘Stridhan’ which are mainly gold jewels. This considered as very sacred and are meant to be only used during crisis. It has a very deep sentimental attachment. So, it’s not an easy task to convince people.
From the very start it was known that it won’t be an easy task, especially in Indian context. As per the scheme, when the gold is brought to the bank or agency, the purity of the gold is determined and exact quantity of gold is credited to the metal account. Then the depositor has to complete the KYC (Know Your Customers) process. After that the gold has to be lent to the jewelers at an interest rate that is a bit higher than the interest to be paid to the depositor. The interest rate given to the depositor is to be ‘valued in gold’. The minimum quantity to be deposited is 30 gram so as to encourage even small deposits. The entities participating in Gold Monetization Scheme would earn up to 2.50% interest rate. The interest rate on medium term deposit which ranges from 5 to 7 years is 2.25% and on long term which ranges from 12 to 15 years is 2.20% as per RBI notification. But only giving a short presentation, a speech and holding a press conference won’t convince the customers. This is a very complex scheme and needed to be marketed well.
Steps to be taken by the Government
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The government should make a proper strategy of how to implement this scheme. First of all they need to start by targeting those states which have huge consumption or deposits of gold. Gold is very popular in the southern states and in marriages it is gifted to the bride in huge quantities. They can be potential customers.
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The government should hire locals as salesperson, who knows the local language very well and can communicate and convince people in a better manner. Its human behavior as we trust the locals more than strangers.
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The benefits like the interest given to the depositor should be linked to the loans they wish to take. In metropolitan cities, it’s the desire of all to have their own home. For that purpose they wish to take a loan but they drop that idea as interest rates are high and metropolitan cities are expensive to survive in. But if they have substantial amount of gold which they can deposit, then we can adjust the interest rate earned on that gold to the amount which they have to pay as their EMI’s. It can be a lucrative option and might more attract customers towards it. The amount which they save from the EMI’s they can use to buy other commodities. Hence, can boost consumption and help the economy too.
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The 1% Excise Duty on the jewelers should be abolished. The excise duty will raise the cost of gold jewellery. Also, the cost of conversion to pure gold has to be paid by customers themselves. So, high expenditure might discourage the people to go for gold monetization.
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The government of India should invest in gold rich countries and buy gold mines there. In African countries which have huge deposits of gold and countries like U.S.A and China have invested heavily there. Also, this might bring down the prices of gold too.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]ill date, the Government has collected 2.8 tonnes of gold. This is a lukewarm response and perhaps below the government’s expectation. But some recent developments like Brexit, i. e. Britain’s exit from the European Union will have effect on prices of gold. The effect of Britain’s exit from European Union was seen the next day. The British stocks were off by 3.2%, while broader European shares dropped by 8.6%. Many analysts believe that investors will pull their money from stock markets and banks, seeking safe-havens in assets instead. Thus, it is likely that gold prices may reach $1,400/ ounce in the international market. Currently, it is $1,366.15/ ounce. As a result, the consumption of gold will go down and high inflation will force people to buy less gold. The imposition of a 1% of excise duty on jewelers will do no good; instead it will result in Red Tapism and rampant corruption. The government, after jewelers protest rolled back the decision on 1% tax collected at source (TCS)on cash purchase of gold jewellery and raised the limit of cash purchase of jewellery from 2 lakhs to 5 lakhs. But it has set up a committee to look into the demands of the agitating jewelers and also into their grievances with regard to compliance and operating procedures for payment of excise duty. On one hand PM Narendra Modi talks about cutting ‘Red Tape’ and place ‘Red Carpet’ for foreign investors, but on the other hand he is increasing ‘Red Tape’ for Indian jewelers. Why the dual standards and bias? For economy to prosper, the government should make policies which ensure smooth functioning of business rather than creating bottlenecks that create hurdles for them to grow.
Notes:
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The prices of gold are taken as per international market rate. Hence, the value is in Dollars per Ounce.
Mr. Mukherjee. I am not against you. Pgurus has done much good investigative work.You need to do yours. Hopefully you will help India quickly , for soon you will find there is hardly any physical gold reserves. I hope not too late. You will find the present Govt held responsible
Mr. Mukherjee. Please first check where India’s Gold reserves ( 557 MT’s ) are . Check if it is physically available or swapped. If so by whom. Check why 85% of the gold which should be in India as per the RBI ACT is not being done, by whom and why?
DO NOT MISLEAD INDIANS