Monetising gold looks easier said than done

CHENNAI: Finance minister Arun Jaitley has listed grand plans to monetize idle gold lying in households across the country and bring it out for circulation to reduce imports of gold, but several hurdles need to be ironed out before the scheme takes off.
The scheme will allow depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account, and this enable banks to monetize this gold.
Jewellers and industry sources say that it is a good scheme and fairly easy to implement, provided the government devises a scheme free from ambiguities.
“Taxation is one issue that needs to be looked at. It should be made sure that unnecessary tax queries don't come up when people deposit large amounts of gold,” P R Somasundaram, managing director India, World Gold Council said.
“It shouldn't be assumed that anyone who deposits a lot would have procured it through illegal means and are up to something. For many people, it could be gold accumulated over several generations. So people shouldn't confuse genuine customers with a small section of people who use black money to buy gold,” he said.
The scheme must be designed to accommodate the fact that Indians by nature hesitate to share details of their financial statues and might not be willing to disclose all details to the banks during the process.
Another gap that needs to be filled is that of agencies that would test the purity and quantity of gold deposited by consumers.
“There has to be clarity on the process flow ­ how the purity will be verified and counted etc. We have offered act as an enabler and have said we will take care of verifying, refining, storing the gold, delivering it to banks when necessary and also developing the software required to manage all these in a user-friendly manner,“ Rajesh Khosla, managing director, MMTC-PAMP India said.
Today, the country has only one London Bullion Markets Association-accredited refining center ­ the MMTC-PAMP is a joint venture between Metals and Minerals Trading Corporation (MMTC) and Switzerland's PAMP, SA, and more such centers should come up so as to give consumers the confidence that their gold is being properly accounted for, and in order to help banks by storing the physical gold for them.
In addition to this, a robust gold lending scheme is required to ensure that the end goal of bringing gold out in circulation is met. The operational document of the Gold Monetization Scheme should spell out details on how banks could lend this gold out to jewelers, or pledge it to the Reserve Bank of India, experts say.
A similar monetization scheme was announced several years back, but didn't take off primarily because the scheme was targeting people who own large amounts of gold. Since this time these rules have been tweaked to target common man, it is expected to get a better response.
What is also giving jewellers reason to believe that it would do well this time is that consumers today are more willing to give up their gold and jewellery then they were earlier.
“We found from a recent survey that people are willing to deposit not just bullion but also jewellery. A lot of inherited jewellery could be either too heavy or out of style now so they are willing to deposit it and earn interest on that,” Somasundaram said.