The Government of India has made the decision to put an end to the medium- and long-term parts of the Gold Monetisation Scheme (GMS). This change, which will take effect on March 26, 2025, comes as gold prices continue to rise and following a thorough evaluation of how the scheme has been performing. According to the Ministry of Finance, only short-term bank deposits will still be available, and that will depend on the banks’ choices.
Gold Monetisation Scheme
The Gold Monetisation Scheme was launched in November 2015. Its primary aim was to mobilise idle gold held by households and institutions. This initiative aimed to cut down on gold imports and help tackle the current account deficit. By allowing people to deposit their gold with banks, the scheme turned that idle gold into something beneficial for the economy.
Components of the Scheme
The GMS included three main components: 1. Short-term bank deposits that ranged from 1 to 3 years. 2. Medium-term government deposits lasting 5 to 7 years. 3. Long-term government deposits that extended from 12 to 15 years. The minimum deposit was set at 10 grams of gold, and there was no upper limit.
Interest Rates Under the Scheme
Interest rates for short-term deposits were set by individual banks, reflecting the current market conditions. On the other hand, for medium- and long-term deposits, the rates were established by the government in collaboration with the Reserve Bank of India (RBI). Medium-term bonds provided a return of 2.25%, while long-term bonds offered a slightly higher rate of 2.5%.
Performance and Impact of the Scheme
As of November 2024, around 31,164 kg of gold had been mobilized through the GMS. In terms of deposits, short-term ones made up 7,509 kg, medium-term contributed 9,728 kg, and long-term deposits totaled 13,926 kg. The scheme saw participation from about 5,693 depositors, all aimed at turning unused gold into valuable assets.
Reasons for Discontinuation
According to the Ministry of Finance, the decision to discontinue the scheme was influenced by changing market conditions and its performance. The government has noticed an uptick in gold prices, which has prompted them to reassess gold-related schemes. The earlier issuance of sovereign gold bonds also underwent similar scrutiny.
Future of Gold Schemes in India
With the discontinuation of the GMS’s medium- and long-term components, the focus shifts to short-term bank deposits. The RBI is expected to provide detailed guidelines on the future of these deposits. The government aims to refine gold-related policies to adapt to changing economic conditions.
