Question #
Craze for gold in Indian has led to surge in import of gold in recent years and put pressure on balance of payments and external value of rupee. In view of this, examine the merits of Gold Monetization scheme.
Answer by Chad #
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.