Gold monetization scheme - pros and cons

Gold monetization scheme – pros and cons

Introduction:

Ever since the budget was passed, it was anticipated that gold monetization scheme would be a new milestone in the development policies of the then newly elected government. There were assumptions in favor and against the credibility of the scheme which is mainly about depositing gold in banks and earning good interest on it instead of keeping it in lockers for an eternity of passed on gifts through generations. We Indians are known for our traditions and indulging in lavish jewelries. Marriages for us is more of a display of how much gold one owns. Amid all these age old indulgence in gold flaunting, will a scheme like this find its place? Will we Indians find it in our hearts to use gold as an asset instead of decking ourselves with it as a symbol of grandeur? Let’s consider the pros and cons of this scheme to understand if it could lure people more than exhibiting.

Pros:

1. Gold remains dead asset in Indian families. Even when the family is in need of money, they despise selling off gold jewelries owing to traditional beliefs and hopes of prices hiking so high one fine day that it would pay them much more than present day. Now that gold could be deposited and the depositor could earn lucrative interest on it, more and more people would want to take benefit of this plan and it would certainly work off well.

2. Every year India imports around 1000 tons of gold even though studies have it that more than 22,000 tons of gold is in stock of Indian citizens. These gold are neither monetized and nor are they used to fulfil the requirements of families at times of crisis. Selling off gold jewelries is considered the last option and then when the family is in urgent need, they sell the gold at lower prices, not to forget the deductions. This problem would be solved if more and more people join the scheme.

3. Our domestic gold market would benefit largely from this scheme. There would be no shortage of gold metals and jewelers would not have to consider importing gold. This could go ahead to fall in demand and could help in lowering the price of gold in domestic market. Foreign exchange reserves and lowering value of Rupee could be kept in check.

4. On maturity, people can get their gold back or equivalent amount of the same at prevailing rate of gold at that time. This would only make gold a better security for those who are sensible enough to see beyond pieces of jewelry in the yellow metal. You get likely exempt from Wealth Tax, capital gains tax, and income tax on the interest received on the deposited gold.

5. Purity of gold is questioned when we buy from local jewelers and after a few years if we go to the same jeweler to sell the same piece of jewelry that we purchased from them, at least 10% is deducted from the current rate.

6. Designs of jewelries change. Not everyone keeps wearing the age old jewelries passed on to them from generations. If trends are to be taken into account, everyone who owns gold jewelries go for an exchange which comes with a huge loss, despite the hike in price.

Cons:

1. Gold coins and bars would not be as appeasing to average Indian families as jewelries made of gold are. For those who want to invest in gold monetization, buying gold coins seems to be the only money-spinning option. Where would all these gold coins come from if people are not willing to give away their gold jewelries in exchange for virtual gold? Yes, there are provisions for gold jewelries but for the scheme to be successful, gold coins seem to be the only lucrative course.

2. Getting all the idle lying gold to be converted into gold coins to be deposited would incur making charges of the jewelry that usually is a good share of the total price. The reason why so many people indulge in buying gold jewelries during Diwali (apart from the traditions) is the lower making charges offered by jewelers. People of every other community and religion prefer buying gold during this festival which makes it clear that we would not be willing to do away with the heavy making charges that gold involved during the buying and now converting procedure.

3. Average Indian households are said to have more inherited and purchased gold than bank savings. Gold is an asset too for these people owing to the fact that there is no taxation on how much gold a person has stocked in his lockers. Nothing as of now has been said about taxation on this gold monetized or deposited in banks. There definitely will be taxable limits which would not interest many and for the scheme to be successful, gold has to be lured out from being dead assets. This is not going to be an easy task.

4. Involvement of income tax offices that would want to know the source if a person pledges too much of gold in banks is not a pleasant thought for many and they may not want to risk getting revealed. While this scheme could appeal to businesses, temples, trusts, banks, organizations, households might not be cooperative in this and since this scheme is intended to bring out dead assets lying idle in households, the mission might not be accomplished.

5. Jewelries would have to be melted to check purity of gold at certifies testing centres or Hallmark centres. If one is not satisfied with the result, they can take home the melted gold. People would usually have no idea about the purity of gold that has been passed on to them from their ancestors and melting the same to be disappointed later is something that will get many worried.

Conclusion:

Gold monetization scheme is the need of the hour for India. Given that we have surpassed China in gold import per year, it would only be wise for people to take advantage of this scheme and monetize their idle lying gold. For those who are buying gold as asset that would hike prices, this scheme is definitely a winner. For those who buy gold in advance for marriages of their daughters, this scheme is just what they could ask for. It is about time we come out of our age old thinking and make use of the schemes that the government is implementing for a good reason.
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    Discussion

  • RE: Gold monetization scheme – pros and cons -Harshal (11/16/15)
  • Cons
    1. As per April 2015, 40% of Indian population is still without Bank accounts which either implies lack of banking facilities or also mean people don't trust to invest in banks. How can we expect people getting the facility to invest in gsm.
    2. Gsm focusses on gold. Majorly ancestorial ornaments are not only made up of gold. It was mostly combination of metals which also included gems along. People wouldn't be willing to give it to take risk.
    3. So far as corruption goes there is no proper system disclosed by governemnt for the scheme so security issues will be a major concern for a common man.
    4. Considering every individual is selling gold to government the prices are bound to fall as the demand mso how will the government pay interestCons
    1. As per April 2015, 40% of Indian population is still without Bank accounts which either implies lack of banking facilities or also mean people don't trust to invest in banks. How can we expect people getting the facility to invest in gsm.
    2. Gsm focusses on gold. Majorly ancestorial ornaments are not only made up of gold. It was mostly combination of metals which also included gems along. People wouldn't be willing to give it to take risk.
    3. So far as corruption goes there is no proper system disclosed by governemnt for the scheme so security issues will be a major concern for a common man.
    4. Indian temples have major chunk of gold reserves, being a religious country chances for them to sell as per the religion are less as rituals dont permit.?
    5. Indian temples have major chunk of gold reserves, being a religious country chances for them to sell as ler the religion are less as rituals dont permit.
  • RE: Gold monetization scheme – pros and cons -Deepa Kaushik (11/12/15)
  • Gold monetiation scheme is lucrative just from the external appearance. It has many catches and it is very doubtful whether any sensible citizen would go ahead with this scheme. The scheme has some benefits which could be utilised by a few who prefer Gold as a yellow metal and investment and not jewellary and ornament.

    Analysing the same scheme from other view point, the scheme calls for Gold monetization benefits in the form of Gold coins or Gold bars. Government is not fool enough to give interest on the Gold deposits for as many gold the common man has. There would be limitations for the Gold deposits. On the contrary they would drive the Income tax department behind the common man for the reason and source of the assessts.

    Majority of the Indians have Gold in the form of ornaments which is their ancestral property being passed on since generations. Many of them wouldnot have even known the era when the ornament was created. How would the family find the source of that Gold? They would be made in a fix to pay the tax on their ancestral property. Presicely it is a very smart work to get money out of common man in the form of tax along with getting the Gold to rotation.

    Secondly, the Indians are highly sentimental for their ancestral property which they would prefer the last to be converted to Goldbar or coin. Even if they have the ornaments that they have bought themselves, converting the jewellary is considered the last measure amonmgst the Indians.

    This scheme is not all that good as it appears. The adverts try to make it lucrative, but the time people know the convertion of yellow metal, they ususally back-out. This scheme could have been better if the jewellary is deposited in the same manner and with the written assurance of not being taxed for the same even in the future.