GOLD MONETISATION - ONLY GODS WILL HELP!

By Ruma Dubey

Either the Government does not know the psyche of the Indian households or it is a scheme purely for the benefit of the temples – that’s the only way in which you can look at the highly ambitious Gold Monetisation scheme which has been drafted by the Govt. Its either naivety or stupidity; one cannot understand how at all the Govt thinks this would work.

Before berating the scheme, a quick look at the features, which in itself will tell you why it is headed for failure.

• Aim – to bring out household and institution gold; instead of allowing it to collect dust in the lockers, bring it back into circulation, while earning an interest on the deposit.
• The gold collected through the deposits will be melted by the banks and then made available to jewelers for making new ornaments and other items.
• Gold deposit accounts will utilise the 20,000 tonnes available in India and cut down 800-1,000 tonnes of gold imported every year.
• Minimum gold deposit can be as small as 30 gms with minimum period of one year and then multiples of one year. It will be collected, cleaned and measured at test centers. Then it will be melted and based on the purity and weight, one can choose to deposit the gold or take it back.
• Banks will need these infrastructures in place for checking gold purity and melting. Banks will issue certificates, mentioning the amount and purity of the deposited gold. And if you are opting for deposit, you will get a 'Gold Savings Account'.
• You will interest on the gold deposited after 30 to 60 days of account opening. Rate of interest will be decided by the bank; the caveat thrown in here – interest earned will be tax free. And the Gold account will also be exempt from capital gains, wealth tax and income tax.
• The principal and interest paid will be ‘valued’ in gold. Eg: If you deposit 100 gms of gold and get 1% interest, on maturity you will credit balance of 101 gms of gold.
• At the time of depositing the gold, one needs to decide – at the time of redemption, you want the return in gold or cash.

Well, to begin with, this will not cut any ice with the Indian households. Try convincing your mother to let go of her gold ornaments, deposit it in a bank and earn interest. She will drive you away like a pest and if you tell her that the gold will be melted and she will not get her jewelry back but melted gold at the end of one year, she will swat you like a fly. So the moment you know that the gold you give will get melted, is reason enough to put off many households.  

And the biggest reason why it will not take off with households – fear of the tax man coming knocking. It is no big secret that all the black money in India goes into realty and gold. So when the tonnes of gold is bought from black money, what makes the Govt think they will bring it all out in the hope of “whitening” the money? No way. Past record shows that such voluntary disclosures, even though with a promise of no future hassles, almost always come to haunt like a ghost from the IT office. Thus sheer fear of getting caught will dissuade 90% of the people from bringing out the gold. And what happens if half your gold was say, inherited from your grandmother? How do you explain all this to the tax man? Yes, depositing the gold for most will be akin to putting out shark bait.

But yes, this is probably the best scheme for temples like Tirupati, Shirdi Sai Baba, Siddhivinayak and others around India. Devotees donate tonnes of gold and the temple sits idle on them, not gaining anything. Tirupati has invested a part of the gold in SBI’s similar gold scheme. For them, this is God sent scheme, to earn money on the donated gold. And temples have huge amounts of gold- at least that will come out and reduce the import burden to that extent.  By the way, the interest rate needs to be lucrative or else the temples will also bless the scheme; SBI’s scheme offers a pitiable 0.75%  to 1% interest, little wonder that it has collected only 15 tonnes of gold so far.

The temples would be happy but will the people who donate this gold like the temple doing this? Many devotees believe that they are donating the gold to God Himself and not to any temple trust. So for these devout, to know that their gold is not going to God but being melted and earning an interest which goes to the Trust will, could break their faith in this form of donating gold. Well, if temples over a couple of years start noticing a drop in gold donations, you know what happened and what will happen.

Well, for now, let’s hope that at least all the gold in the temples come out. Household gold? Now that’s like trying to snatch away a bone from a dog…try it and you could get bitten.