anc 8 pages =30 m ECON eI aa ocd www.medcindia.com Bree) =THE ROADMAP FOR THE FUTURE OF MAHARASHTRA’Sa Some Reflections on The Gold Monetisation Scheme Introduction ‘The government of India has released the draft fon Mayl9, 2015, Having mentioned that the objectives of GMS are to (3) ‘mobilize the gold held by houscholds and instintions b) provide flip to the gems and jewllery sector and(c ) reliance on imports, the draft scheme Gold monetization scheme to reduce laborates on the purity verification and the gold savings deposit account ‘with the banks. The Draft scheme also mentions about the tax treatment and the incentive mechanism (0 che banks sclating to CRR/SLR, In the above context, itis pertinent 10 rote that the drafe scheme has set the tone for the GMS, however, some of the vexed issues asset ut below ace still ‘unanswered = Whats che estimate of idle gold? = Whar is gold monetization process? = What the impact oxttarious stakeholders? How to sensitize the various Jnvestors the benefits of| these scheme? = How to addeess the taxation issues? = What i che instinational mechanism? Should the schemes managed by banks or a dedicated instireion ike ‘gold bank? ‘= Whar the egulatory mechanism if banks ate involved? ‘Thepresentpaperhasaddressedtheabove issues relating to the operationalization of the scheme. ‘What isthe estimate of idle gold? ‘There ate no accurate estimates of the idle gold holdings in India. However, experts have made some calculations with the volume of gold with the 26 w July 2015 hhouscholds, Sine of these estimates are around 20,000- 22,000 tons excluding the holdings with temples and trusts. ‘We undertook an exercise to estimate the holdings using neo different methods. As pet our method 1 he idle gold holdings worked out t0 tons exchding temple and trusts In the second method a8 presented in table 2 we arrived at a total of 24,650 tonsit may be noted that method 2 is moze sealisic as it includes families a ll levels rather than only middle class and above assumed in method 1.The assumption of 20 © ‘unusable and damaged gold is based on personal interviews at differeat socio economic levels, This is common for both methods. What is Process? the Gold Monetization ‘The budget proposal contains three India Review De-Ranj@t Patnaik Prof. Harsh Mohan schemes. One is gold deposit with 2 compensatory interest, second is gold bond as a nancial asset and the third is 4 gold coin, Even though these schemes ae different from the view point of investor preference, however, there are elements of mutual conclusiveness in terms of mobilizing the idle gold from che public a large. The idle gold which are possessed by households, trusts snd temples have four categories vie: usable jewelry. unusable jewelry, damaged jewelry and coins/ bars. We have worked out an input- output process which is set out in Table 3.e agree with the deafe scheme that for assaying Bureaw of the Indian Standard (BIS) may be involved. In addition we also suggest that MMTC may also be involved Sal amen | 260 mn Bam) 25% (| Level old Holding | Volume (on : (ns) erm 160 00 Next 15% soo | _4ars Next 25% [ ce Boron Hat GO) | | 185 “ret a Damaged Urata Bas one Value 2925 Tons @ Rs 200 cr Ton Rs. 877500 Imports 600 T@ Rs 30 on Re. 240,000 er | [No.of years moors [peewee | * Authors’ estimate; Excludes gol wih Temples & Tests Matas Esonomic Development Cousik Moly Econom DigestIndia Review ay How to sensitize the Customers/ Investors the benefits of these schemes? ‘The customers/ investors could be sensitized about the benefits of the Percentage of scheme in terms of pureness of gold, eansparency in weight, options for deposit/bond/coins. ‘The gold bond No. of Families Gold Holding | Volume ams) | (tones) | <2! discourage the annual demand of Level Income approximately 300 tons from physical >25L pe. a oD 18500_| polding of gold in bars and coins and Bi-2stpa | 100 [2100 | thereby reduce pressor om import The Climbers ©) | 13-21Lpa_| © EN 2450 | investors shoul! be notified that gold Aspiriass D) | 072-13Lpa_| 80 20 1400__| bond need not have the physical gold to [Foor ae 38 z bbe procured and stored as a backup for [Tora a asso] te Bonds. As ths col bea continuous a ee annual scheme with buyers and sellers in jamaged / Unusable (20%) 4930 tones - the matket, despite a speciied matesiy Value 2925 Tons @ Rs 300 er/ Ton Rs. 14,79,000 cr _ Ra args Sans a ees Imports 600T @Rs300cr/ Ton __—_| RS. 2,40,000 cr fvestors will be further notified that [[No. of years imports 6.16 yrs |. these bonds will be uadable om the a eS LS eae stock exchange 1 rake them ateactive. NCAER Income Estimates: Excues goktwith Temples &Twss__| ermal, these bonds may be held ‘The flow chars in table 3 depicts the account deficit (CAD), and conversion ll maturity and redeemable ia the bank inpuc and ourpur process of unproductive astets to productive, on marin thereby augmenting nancial savings snd economic growth. Banks, NBFCs and Fls will have the benefit of gold Inthewholeprocessof gollmonctization jn their investment porfolio. The flow there are fre stakeholders chart as set ostin table 4 below exphins castomers jewelers, government, banks/ in detail the impact of gold monetization tints non-banking Gnancalinstiatons( gn wasious stakeholders. NBFC3)/ Financial ‘The investors will be assured of the secured safe and transparent Gelivery under the deposit scheme for procurement of physical gold, Anecdotal evidence suggests that ia India, the gold and jewellery business is highly fragmented and unorganized and acsely ‘What is the Impact on various Stake holders * Tgtuions(F Table 3: GOLD MONETIZATION PROCESS The customer households, temples [Usable A) [> Weighing 1) Cash ~ Less sence and teusts) will get | Jevelery > caraiags rorge assured valve, proper > Removal of tonas ies weeeee. caratage, seansparency | 2) unusable > Mating + Vane es) in transacion and the |” Jewetary > Fl weight + High interest options of having > Fins casts Sone om cash/deposic/bonds/ | 5) pamaged > Net weight surendered coins. Jevless have the |” jowenery > vue @ erent pce + Redeem at par benefit oF geting gold eo ‘without import besides | 4 eins Bore > Serco char assured caratage, > Weting cage 2) appropriate pricing > Carnage charge 4) Bare Coi + Geox (gmey without exchange > Removal tones (Hamar) + Low terest (1 sate actuatons and Processing 2) oe 8) Jewelery (Matar) government will have [> New sowetery oo Semen the benefic of lower > Making cage om import, lower cuerent > Coster stones aerate oom Development Coun Moy Beno Dist = = July 2015 e272ain India Review meee Table 3 GOLD MONETIZATION PROCESS: ‘CUSTOMERS JEWELLERS: ‘GOVT MINT/BANKs | NEFC’s/FI'S Ps a ecres earaorn | ck ooaseeacrern | Tor esecots | Ps + Accurate catage oor een halmarted coins business + Options of =. ner oans (ve) ce + Noterexctutons ]" Lowersmaging |. easy supply ot gous | Lowe itarest + veer fee eae tn) cn poor savers 6 cee! + tereain + eam mourn i peer ien | jeseneme gaosee ae 2 oe een a pee oats cote a. , er. ‘+ Higher investment & «norman a congo + Getna ot unk ewetery + Higher grown 96 per cent is family-owned business According to different estimates, there ate about 16,000 gold dealers, 4,50,000 ‘goldsmiths, and more than 2,00,000 jewelry outlets, in addition to diamond jewelers. To successfully implement the deposit scheme, the investor will be notified abour the nerwork of gold-pusty vereaton centers: fabrication facility, and storage and distebution services. “The investors may be assured of purty by a process of hallmacking of gold and gold jewellery a8 claborately set out ia the daft scheme. We may add that the people living ia rural areas should be made aware of the availability of gold-backed financial products oF not having accessibility to favest in such gold-zeated products through print and television media, How to address the taxation issues? According to the draft scheme the similar tax treatment (exemption from capital guins tax, wealth tax and income tas) as applicable to the gold deposit scheme (1999) will be applicable t0 the proposed GMS, Tn our considered view, wo address the vered problem of taxation, the Government could consider « provision that gold monetization of 100 grams oF less would nor require any identification documents. As the scheme operates 28 m July 2015 ‘through banks, any amouatof gold more banks are involved? han 100 grams should be monetized In case of regulatory mechanism, rough the individuals bank account. it would be appropriate that these ‘Though the current rules stipulate that schemes as managed by banks/NBFCs PAN card number is mandatory beyond may be regulated by the RBI. It may a limit of Rs. § lakhs for ornament be recalled earlier there was a GOLD purchases, anecdotal evidence revealed CELL. in the RBI. The same may be that many jewelry shops break that norm revived. Guidelines may be issued 10 ‘There is a strong need for plugging banks in respeet of CRR, gold deposit these loopholes to increase transparency mobilization and loans. The Chinese in gold deals. Once this is implemented model of regulations on aint the investors wil be anmcted towards of gold and sve poy of Peoples of gold bond deposi schemes Bank China could be hepa ‘hat is the insticuional mechanism? To conclad, the schemes a» mentioned Should the schemes managed by shorchave immense bencitsin terms of banks ora dedicated institution like augmenting nancial savings through the gold bank? process of dsintermedation of physica ‘A perusil of the cacler literary works savings of gold. The economy will get ‘working groups in Indian context the bene of dormant and unproductive reveal that there are various suggestions assets to regarding the institutional mechanism. will help ip faciltating the economy 0 ‘One view is that there should be a move tonarde a higher growth trajectory dedicated organization ike Gold Bank acritcal quirement inthe ‘of Gold Corporation 10 manage these juncture. Besides, some cushion schemes. Itis suggested that tansaetion will be here for gold import. Apart fang administrative costs will be very ftom his there are porentil benefits to high for channelising the idle gold depositors/ investors, jewelers, banks, through such a dedicated institutional and governmentin terms of traneparency doctiveassets. This in turn, arrangement. Instead, for administrative in transactions convenience as also cost effective transactions it will be appropriate 9 manage these schemes chrough the TSontir oe Prise a SPIIMR, Mims rnerwork of banks and NBFCS The Views sre are Peron ‘What isthe regulatory mechaniam if —+oH— Matsa Economie Devetpnt Coun, Monthy Essai Dist anjitkpatinaik’@ gmail.com