The Gold Monetization Scheme in India was introduced by the government to address the country's dependency on gold imports and to mobilize the idle gold held by individuals and institutions. It aims to incentivize the deposit of gold with banks in order to reduce the gold import bill, reduce pressure on the balance of payments, and stabilize the external value of the Indian rupee. Here are some merits of the Gold Monetization scheme:

1. Reduction in gold imports: By encouraging individuals and institutions to deposit their gold with banks, the scheme aims to decrease the need for gold imports. This helps in reducing the pressure on the country's balance of payments and saves foreign exchange reserves.

2. Financial inclusion: The scheme enables individuals and households, especially those from rural areas who traditionally hold a significant amount of gold, to participate in the formal financial system. It provides them with an avenue to earn interest on idle gold and access other banking services.

3. Unlocking idle gold: India has a substantial amount of idle gold, estimated to be around 25,000 tons. By mobilizing this gold into the banking sector, the scheme promotes the efficient use of resources and can help improve the overall productivity of the economy.

4. Availability of gold for lending: Banks can lend the gold deposited under this scheme, which can be used to meet the demand for gold loans within the country. This reduces the need to import gold for lending purposes and can potentially lower interest rates on gold loans.

5. Increased transparency: The scheme supports the formalization of the gold market by bringing unaccounted gold held by individuals into the banking system. This can help curb illicit activities and promote transparency in the overall gold market.

6. Diversification of investments: The scheme encourages individuals to consider alternative investment options by offering them an opportunity to earn interest on their gold instead of keeping it as a non-yielding asset. This can potentially help in diversifying investment portfolios and reducing over-reliance on gold as a store of value.

Overall, the Gold Monetization Scheme has the potential to address the issue of gold imports, reduce pressure on balance of payments, and stabilize the external value of the rupee. It also promotes financial inclusion, unlocks idle gold, and increases transparency in the gold market. However, the success of the scheme depends on effective implementation, awareness among the public, and the availability of attractive interest rates and benefits for depositors.

Merits of the Gold Monetization Scheme in India

The Gold Monetization Scheme (GMS) was launched in 2015 to address the concerns of India's high gold imports, which were putting pressure on the balance of payments and the external value of the rupee. The scheme aims to mobilize the vast stock of gold held by households and institutions in India and utilize it for productive purposes. Here are some of the merits of the GMS:

1. Reducing Gold Imports: By incentivizing people to deposit their gold, the scheme aims to reduce the demand for imported gold, thus easing pressure on the balance of payments and stabilizing the rupee.

2. Mobilizing Idle Gold: The GMS aims to bring the vast stock of gold held by households and institutions into the formal financial system, making it available for productive use. This can boost economic activity and create employment opportunities.

3. Providing Alternative Investment Avenues: The scheme offers a secure and attractive avenue for individuals to invest their gold and earn returns. This can encourage people to shift their investments from physical gold to financial instruments, promoting financial inclusion.

4. Enhancing Gold Reserves: The gold deposited under the GMS can be used by the Reserve Bank of India (RBI) to enhance its gold reserves, thereby strengthening the country's financial position.

5. Supporting Government Finances: The gold deposited under the GMS can be used by the government to finance its development projects, potentially leading to economic growth and social development.

6. Fostering Financial Inclusion: The GMS can facilitate financial inclusion by bringing gold into the formal financial system, making it accessible to a wider range of people.

7. Promoting Transparency: The GMS promotes transparency in the gold market by bringing a large portion of the gold stock into the formal system, where it can be tracked and monitored.

8. Reducing Risk of Gold Theft: By encouraging people to deposit their gold in banks, the GMS can help reduce the risk of theft and loss of gold, providing a safer alternative for storing gold.

9. Promoting Financial Literacy: The GMS can help raise awareness about financial instruments and encourage people to diversify their investments, promoting financial literacy in the country.

10. Sustainable Development: By promoting responsible gold use and reducing the demand for gold mined through environmentally harmful practices, the GMS can contribute to sustainable development.

However, the GMS is not without its challenges. Some key limitations include:

• Low Participation: The participation in the scheme has been low, primarily due to factors like the limited returns offered, complex procedures, and lack of awareness about the scheme.
• High Minimum Deposit Limit: The high minimum deposit limit can be a barrier for small-scale gold holders.
• Limited Tenure Options: The limited tenure options can discourage individuals from participating in the scheme.

Despite these limitations, the GMS holds the potential to positively impact India's economy and financial system. With proper awareness, simplified procedures, and enhanced benefits, the GMS can become a crucial tool for addressing the country's gold-related challenges and promoting financial inclusion.

The craze for gold in India has indeed led to a surge in gold imports, putting pressure on the country's balance of payments and the external value of the rupee. To mitigate this issue, the Indian government introduced the Gold Monetization Scheme (GMS) in 2015. Here are the merits of the scheme:

Merits of Gold Monetization Scheme:

1. Reduces gold imports: By mobilizing idle gold lying with households and temples, the scheme reduces the need for gold imports, thereby helping to conserve foreign exchange and alleviate pressure on the balance of payments.
2. Increases liquidity: The scheme allows individuals and institutions to deposit their gold with banks, earning interest on their gold holdings. This increases liquidity in the economy, as gold is converted into a productive asset.
3. Improves financial inclusion: The GMS encourages people to deposit their gold with banks, promoting financial inclusion and providing an avenue for small savers to participate in the formal banking system.
4. Reduces gold hoarding: By providing an incentive to deposit gold, the scheme discourages gold hoarding, which is a common practice in India. This helps to put idle gold resources to productive use.
5. Eases pressure on rupee: By reducing gold imports and encouraging domestic gold mobilization, the scheme helps to ease pressure on the rupee, which has been subject to fluctuations due to gold imports.
6. Supports economic growth: The scheme can contribute to economic growth by converting non-productive gold assets into productive ones, which can be used for lending, investment, or other purposes.
7. Creates jobs: The GMS can generate employment opportunities in the gold industry, including refining, assaying, and handling of gold deposits.
8. Diversifies investment options: The scheme provides an alternative investment option for individuals, encouraging them to invest in other assets, such as stocks, bonds, or mutual funds, rather than gold.
9. Improves gold market efficiency: The GMS can lead to a more efficient gold market, with standardized gold deposit schemes, transparent pricing, and reduced middlemen, ultimately benefiting consumers.
10. Fosters long-term savings: By offering an attractive interest rate on gold deposits, the scheme promotes long-term savings and investment behavior among Indians, which can lead to a more stable economy.

While the Gold Monetization Scheme has several merits, its success depends on various factors, such as the interest rate offered, the convenience of depositing and withdrawing gold, and the overall trust in the banking system. The Indian government has taken steps to address these concerns and improve the effectiveness of the scheme.