How Has The Revamped Gold Monetisation Scheme Performed?

Precious metal analyst Sanjiv Arole reviews the performance of the revamped Gold Monetisation Scheme.

On the high seas, if one is without fresh water then it is the case of water, water everywhere but not a drop to drink. The Indian Government that sees the oceans of gold all around in the form of private holdings is often allured to try and tap this vast reservoir and prevent import of gold and address the balance of payment issue. The Government also wants to spend less on this ‘wasteful’ expenditure and save on valuable foreign exchange. But, alas just like you cannot drink sea water directly, so also this huge quantum of gold in households, temples, churches, mosques and other institutions cannot be procured so easily. Successive governments have tried in vain to tap this vast gold reserve. It is the case of neighbour’s envy, owner’s pride but, government’s distress!

In the 2021 Union Budget, the Government presented a revamped Gold Monetisation Scheme and made yet another attempt to net gold holdings with by private entities, including households.

The key amendments to Revamped Gold Deposit Scheme include increasing the number of branches of Public Sector Banks in all towns to be designated as GMS service branches, dematerialisation of  Medium Term Government Deposit (MTGD)  and Long  Term Government Deposit (LTGD) Certificates to make them tradable and mortgageable, jewellers/refiners to be engaged as Gold Mobilisation Agents and Collection and Purity Testing Centre (CPTCs), interest payment in Short Term Bank Deposit  (STBD) denominated and to be paid in INR terms, reducing the minimum deposit under R-GDS to 10 grams of gold, permitting banks to buy standard locally refined/ sourced gold from refineries and Gold Spot Exchanges, allowing interbank lending of IGDS/LBMA standard Bullion, development of GMS Digital Platform and use of MLTGD Gold under GMS for Bullion Leasing under GML.

The key amendments to the Revamped Gold Metal Loan Scheme include repayment of Gold Metal Loan (GML) in lots of 1kg, repayment of gold loan under GML using locally sourced IGDS standard bullion and that GML will be made available to all jewellers with a valid Working Capital Credit Limit. Many of the above mentioned amendments to the Revamped Gold Deposit Scheme have already been notified by the RBI by amending the GMS Master Direction.

The key amendments to Indian Gold Coin Scheme include that Security Printing and Minting Corporation of India (SPMCIL) will also mint and sell IGC through an online e-commerce platform, and via multiple channels including Airports, availability of IGC in both 999 and 995 purity, minting in smaller denominations, and flexibility to mint commemorative and other order gold coins.

All of the above was expected to revitalise the GMS, SGB as well as the Gold Coin scheme. At the time of the budget, the economic recovery was said to be on track and the government had also pumped in liquidity into the markets as well as the pockets of the poor. Then, the 1st quarter of 2021-22 showed GDP growth in excess of 20%, the monsoon was expected to be above normal and almost all economic parameters on the upswing according to government estimates. Things seemed to be just about ripe for significant rise the GMS and SGB collections and the government expected the Gold Coin to attract many buyers. However, the numbers were far from encouraging. The GMS and GDS combined have netted only 24 tonnes overall (GMS 4 tonnes, GDS 20 tonnes). The SGB has fared slightly better at 65 tonnnes. In reality, not much progress made since the revamped schemes were launched. So, why did the revamped schemes fail?

If one looks at the economy numbers closely it is easy to decipher that the impressive 20% plus GDP growth was a mere mathematic growth. In reality, for the same period last year we had (-) 24.4% GDP growth. Therefore, the low base gives an inflated hue to the GDP number. Then, even though agriculture has been the star performer during the pandemic (before and after) and predictions of a good monsoon auguring well for the sector again, mid-season monsoon forecasts are a bit worrisome. Skymet has predicted a 60% of below normal monsoon after a very dry August period put the monsoon numbers into deficit. Even drought in some areas is predicted. IMD too has turned cautious. Moreover, the bugbear of job losses and closure of many small businesses coupled with higher inflation makes economic recovery tough in the wake of the second wave and much feared 3rd wave of the pandemic scheduled to reach Indian shores soon. Then, recently, a single city in Kerala (Trivandrum) saw three-page ads showing names of those who had defaulted on paying their dues to reclaim pawned jewellery. The notice was for such jewellery to be auctioned off. Significantly, gold loan outstanding soared by 77.4% or over Rs.27,000 crore to Rs.62,400 crore plus till July 2021 (YoY). In times of distress due to the pandemic, quite naturally many opted for gold loans. But, inability to repay due to continued economic hardships resulted in higher gold loan outstanding. Therefore, it is no surprise that households could not deposit their gold in the revamped GMS, SGB or even buy Gold Coins. One may to wait for complete economic recovery before one can really ascertain success or failure of the said schemes.

A former world No. 2 in tennis and a contemporary of John McEnroe (his best friend on tour) proudly proclaimed to the world, after he had just beaten tennis legend Jimmy Connors, “You cannot simply beat Vitas Gerulaitis 17 times in a row”. One can only sincerely hope that the GOI does not have to wait for such a long time to crack the GMS code!

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