The gold monetization scheme aims to unlock about 20,000 tons of gold worth over $800 billion lying idle in homes and temples. Under the plan, banks will collect gold for up to 15 years and pay 2.25-2.50 percent interest per year. This is higher than previous rates of around one percent. The government hopes that higher interest rates will help in mobilizing the gold as previous attempts have been unsuccessful.
PM Sh @narendramodi launches Gold schemes in New Delhi pic.twitter.com/uTM0NZwAAF
โ PIB India (@PIB_India) November 5, 2015
"Gold is a security, it gives you earnings and now on it is going to be a part of our nation building," Modi said.
By launching sovereign gold bonds with 2.75 percent interest, Indian authorities hope to cut the physical buying of the precious metal.
Modi has also unveiled the first Indian gold coin which is initially to be available in denominations of 5 and 10 grams.
The graph below highlights the annual #jewellery demand in #India and #China vs. #US and Europe.
#Diamonds #Gold pic.twitter.com/WGD1ipqWQO
โ Celsteel (@CelsteelDiamond) April 24, 2015
The program wants to cut the country's reliance on gold imports, estimated at around 1,000 tons a year.
"The government wants to reduce the reliance on gold imports over time," an Indian finance ministry official said.
Global gold demand plunges to 6-year low http://t.co/hGc2LaMPqL pic.twitter.com/h9w867jaX3
โ RT (@RT_com) August 14, 2015
The Prime Minister said the country has overtaken China as the world's largest gold consumer, buying 562 tons so far this year, against China's 548 tons.
In 2013, India's budget deficit hit a record $190 billion. The deficit was due in part to Indians spending a lot of money on gold imports. The government was forced to hike its duty on imports to a record 10 percent. Imports of gold fell to $34 billion in 2014-2015.
Indians are known for their obsession with gold, which is seen as symbol of social status and prosperity. Gold is widely used for wedding gifts, religious donations and as an investment.
Modi is dreaming. He of all people should know that Indians do not trust banks and paper money or computer entries which supposedly pay them imaginary interest on imaginary gold certificates. All those many thousands of tons of gold are on ladies' wrists and around their necks or in their jewel boxes, hundreds of millions of them, where it can be touched and admired, and they are never going to turn it in for paper certificates or bits and bytes in a computer. The rest of it is in the inventory of jewelers who satisfy that public demand, and their profits on their manufacturing activity is a hell of a lot more than 2.75 percent per annum. Banks fail, governments run deficits or are overthrown in war or civil unrest, computers crash, but physical gold is forever. This proposal will never succeed.