Earlier this month, PM Narendra Modi announced several government-backed schemes to utilize the country’s vast and relatively unused supply of gold and gold jewellery to bolster the local economy, and inject a massive amount of funding – roughly Rs 53 lakh crore – into the economy. The estimated 20,000 tonnes of gold in Indian households – according to Mining.com – was to be collected from the families and people who held it.
But despite efforts to make it happen, Modi’s current three schemes – the introduction of gold coins, the Gold Monetization Scheme, and the Sovereign Gold Bond aren’t going as far as the government would’ve hoped. Or is there still time?
An Issue Price That Is Far Too High
Although the Gold Monetization Scheme may still find success in time, bankers fear that the high issue price was at fault. Although the Reserve Bank hasn’t given out details of the exact value of the gold retained, bankers peg it to be around Rs 150 crore. “The primary reason for this lower-than-expected collection is the higher issue price. The Reserve Bank of India had set it at Rs 2,684 a gram, whereas the market price was lower. Why should somebody buy at higher price?” asked a senior banker.
Other bankers noted that the return on the bond scheme was reasonable, given that this was the first time the government has ever attempted to perform a scheme like this.
Gold Is Still the Favoured Investment Tool for the Masses
Another issue with the idea of exchanging gold for money or bonds is the fact that gold itself remains to be the most solid investment for poorer families. Investing in pricier commodities or larger investments like stocks or real estate isn’t feasible for a poorer family, but gold is more stable than the INR has been. After all, according to data from the World Gold Council, over 60% of gold jewellery owners in India haven’t done anything with their gold except hold onto it.
Banks and Gold Exchange Centres Remain Scarce
In the case of the Gold Monetization Scheme, one reason it hasn’t picked up the pace is the distinct lack of places to trade gold in. Although banks have been generally given the authority to act as gold collection facilities, more centres are needed to truly mobilize the efforts for proper gold collection in the rural areas.
With a Weakened Currency, Some Indians Don’t See the Benefit in the GMS
Why return gold for cash or bonds, when gold is a solid commodity to invest in? Some Indians don’t see the benefit in holding the value of their gold in a fluctuating currency – especially when it’s being bought at less than market value. That’s a big reason for a slowdown in gold collection – changing public opinion and improving local trust in the strength of the INR may help turn things around.
The Ashok Chakra, collector’s coins minted out of gold, were popular because they’re an investment in an asset that is sure to increase in value as India’s first gold coins. But unless some other incentives are offered to the public in exchange for the public’s gold, the government may not find much success this time around.
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