The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman addressing a post-budget press conference, in New Delhi on 1st February, 2021. The Minister of State for Finance and Corporate Affairs, Anurag Singh Thakur and other dignitaries like Secretary, Department of Economic Affairs, Ministry of Finance, Tarun Bajaj, and Secretary, Department of Investment and Public asset management, Tuhin Kanta Pandey are also seen.
Gold import to reduce by approximately 30% in 3 years
In a landmark decision by the Department of Economic Affairs, The Ministry of Finance, the revised Gold Monetisation Scheme (GMS) guidelines gave yet another reason for the industry to cheer. The amended GMS is in line with the GJEPC’s suggestions put forth last year. The new GMS will incentivise banks and jewellers to make the scheme a success, and may unlock more gold from private owners, which is estimated to be around 25,000 tonnes, and, in turn, will reduce the country’s reliance on gold imports .
Monetising the privately held vast gold reserves in India is the primary aim of the newly modified Gold Monetisation Scheme announced by the Finance Ministry on 9th February, 2021.
The Scheme will look to reduce India’s dependence on gold imports, which in pre-Covid times averaged several hundred tonnes a year. The scheme also seeks to unlock the estimated 25,000 tons of privately held gold stock, valued at over $1.5 trillion, most of which is sitting idle in lockers across the country.
The Government’s acceptance of the GJEPC’s recommended amendments to the GMS is being hailed as a watershed moment for the industry.
Colin Shah, Chairman, GJEPC, said, “We express our deepest gratitude to Hon’ble Minister of Finance, Smt. Nirmala Sitharaman, for accepting and incorporating all the recommendations of the GJEPC in the Gold Monetisation Scheme (GMS). The revamped Gold Monetisation Scheme is a win-win for all as it will unlock tonnes of unused gold in India. This will not only benefit the consumer, retailer and banks, but the nation as well, and will drastically reduce the import of gold and help reduce the pressure on the country’s current account deficit.”
Further Colin Shah said, “It is estimated that India imports around 700 tonnes gold every year and is second largest gold consumption after China. The dependency of gold import will come down significantly as there will be local gold metal in the system. We anticipate the percent of gold import in the next 3 years will gradually reduce by 30 percent.”
Tarun Bajaj, Secretary, Department of Economic Affairs, said, “Amendments to the Gold Monetisation Scheme by expanding the involvement of stakeholders including banks and jewellers will improve the scheme’s ability to tap privately held gold stocks more efficiently. This is expected to enhance the use of domestic gold stocks to meet the domestic manufacturing sector’s precious metal demand, while also improving availability of Gold Metal Loans for the jewellery industry.”
K. Srinivasan, Convener, Gold Panel, GJEPC, said: “I would like to thank the Government for considering our recommendations for the Revamped Gold Monetisation Scheme. Including jewellers as Collection and Purity Testing Centres (CPTCs) is a welcome move. Jewellers will be benefited as it’s an additional revenue for them and they will ensure that the scheme will be a great success as they can easily convince their existing customers to park their gold in the GMS.”
At least one-third branches of all public sector banks are advised to provide the gold deposit scheme on demand. The private sector banks, too, have been directed to participate in the Scheme.
The minimum deposit under the GMS has been reduced to 10 grams from 30 grams earlier with no maximum limit.
The Medium Term and Long Term Gold Deposit Certificates (MTGD and LTGD, respectively) will be dematerialised and moved to a secure digital platform developed by State Bank of India (SBI). Thereafter, a regulated securities depository will be designated by SBI to hold GMS certificates in digital demat form.
These certificates will be investor-friendly as they will be tradable and transferable in the market.
Supreme Kothari, Associate Director, Economic Laws Practice, said, “The amendments made to the GMS are certainly steps in the right direction and would bode well for ensuring its better performance. Amongst others, the decision to maximise bank participation as well as engage jewellers as collection and mobilising agents would make the scheme more accessible. The amendments also seek to ensure that every participant is adequately incentivised, for example, banks would now be allowed to seamlessly employ gold garnered under the scheme for online lending under GML. Similarly, the proposal to dematerialise gold deposits and afford it tradability and transferability will make it a highly attractive product. A hassle-free, easily workable implementation of the proposals is now hoped for.”
Bullion analyst Sanjiv Arole is happy that at least one-third of all public sector banks will offer the modified GMS. “Also it has become more affordable for the common man as the minimum deposit has been reduced to 10 grams from 30 grams earlier. The shift to involve and incentivise jewellers is also an encouraging sign,” he added.
In a major boost to local refineries, banks are now permitted to buy standard locally refined/ sourced gold from refineries and Gold Spot Exchanges.
Shivanshu Mehta, Head-Bullion, Multi Commodity Exchange of India Ltd. (MCX), said, “In pursuit of the Atmanirbhar Bharat mission, MCX has embarked upon the path of recognising domestic bullion refiners for good delivery of gold on the Exchange platform. Acceptance of gold bars refined by the empanelled domestic refiners would now begin for delivery on the Exchange platform. This will facilitate expansion of the organised bullion trade in the country and enhance transparency as well as self-reliance.
“Similarly, since GMS deals with domestic gold, such exposure can be hedged most efficiently by using our gold contracts which represent a duty-paid price. It would be ideal if banks and other intermediates are encouraged to manage this price risk on domestic commodity exchanges, thereby adding a fillip to the scheme.”
Under the revamped Gold Metal Loan (GML), repayments will be allowed in lots of 1kg by all participating banks.
GML will be made available to all jewellers with a valid Working Capital Credit limit, and the gold deposited in Short Term Gold Deposit as well as gold bullion leased from MTGD deposits may be used by banks for GML lending.