Gold Monetisation Scheme (GMS), 2015 To Be Discontinued From March 26

The Finance Ministry has announced its decision to discontinue the Gold Monetisation Scheme (GMS) for medium and long-term deposits. This is effective March 26, 2025. The decision is based on evolving market conditions. The performance of the scheme also factored in. The ministry stated this in an official release.

Short-Term Deposits May Continue

Short-term bank deposits under GMS may continue. This is at the discretion of individual banks. It depends on their commercial viability. The ministry note added this.

Background of the Gold Monetisation Scheme (GMS)

The Gold Monetisation Scheme (GMS) was relaunched in November 2015. It was launched around the same time as Sovereign Gold Bonds (SGB). The aim was to financialise gold as an asset class. SGBs allowed investors to buy “paper gold”. GMS was a gold deposit scheme. It enables individuals to store or sell their gold to banks.

Indian households are estimated to hold 30,000 tonnes of gold. This gold is in the form of bars, coins, and jewellery. From an economic perspective, this gold is seen as sitting idle. The government introduced GMS to make idle gold productive. It aimed to integrate it into the formal economy. It also sought to reduce gold imports.

How GMS Worked

Gold deposited under GMS was melted. It was assayed by a Collection and Purity Testing Center (CPTC). This applied to gold in the form of jewellery or other assets. The gold was then converted into tradable gold bars. Any impurities in the gold were deducted. Stones or studs from jewelry were returned.

The final amount was credited to the depositor’s gold account. Upon redemption, depositors could receive their gold back. This was in the form of bars or coins. Fractional amounts were converted to cash. The scheme provided an opportunity to earn interest on idle gold. It also aimed to save on locker charges.

Why GMS Did Not Succeed

GMS saw limited participation due to the prevelance of several emotional and cultural barriers. Indian households were reluctant to melt ancestral and personal jewellery due to strong sentimental and cultural attachments.

Besides, the limited number of testing centers made the process was cumbersome, lengthy, and inonvenient. There were heightened consumer concerns regarding gold taxation and disclosure. Under the scheme, depositors had to declare their gold holdings to earn interest. The interest earned was taxable. This discouraged participation.

Low awareness and outreach were other factors that led to the scheme’s failure. Poor promotion limited participation from banks. Many potential depositors were either unaware or uninterested in the scheme.

While GMS aimed to bring gold into the financial system, these barriers limited its success. This prompted the government to discontinue medium and long-term deposits.

Conclusion

The discontinuation of medium and long-term GMS deposits reflects its limited success. Emotional and practical barriers hindered participation. Short-term deposits may still be offered.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.