The Prime Minister’s bid to bring into circulation the gold owned by India’s vast middle class is likely to run up against the emotions Indians tend to invest in the yellow metal, investment analysts and jewellers said.
The Gold Monetisation Scheme, launched by Prime Minister Narendra Modi on Thursday, is yet another attempt by the Union Government to persuade Indians to let their gold do some work for the economy instead of sitting inert in almirahs and bank vaults.
However, analysts said the scheme will appeal only to people who buy gold for investment purposes.
“Such people are likely to benefit from the higher interest rate of 2.25-2.50 per cent per annum offered by the new scheme,” said Mr. T. Jagannadham of Karvy Stockbroking.
Conventionally, banks accepting gold deposits offered interest rates in the region of 1 per cent.
J. Raghunath, general manager (marketing) of Vaibhav Jewellers, said he expects little heritage gold to come out into the open as a result of the PM’s new scheme.
“People who are sentimental about their jewellery may not come forward. And in India, the bulk of the middle class has an emotional attachment to their gold.”
The difficulty is that sentiment is attached as much to the design of the jewellery as to the gold itself.
As per the new scheme, the deposit (minimum: 30 gm) has to be of pure gold in the form of bars, coins, and jewellery minus precious stones. There is no maximum limit, but people depositing gold worth more than Rs. 50,000 will have to disclose their PAN number.
This is an area of concern, as much of the gold hoarded by Indians tends to be heirlooms.
Few would like to answer questions from IT Department about how they came to possess the gold, according to Chandrasekhar Veeraganta, a Chartered Accountant.
Another area of concern is the fear of losing 18-25 per cent in the purification or minting process.
S.K. Das, general manager of Minerals and Metals Trading Corporation (MMTC) at Visakhapatnam, says the scheme makes eminent sense. Estimates of the gold hoarded by Indians ranges up to 20,000 tonnes, the worth of which is close to USD 800 billion at present prices. Even if a part of it came out of cold storage, it would bring down the current account deficit of the country, he said.
While that would be good news for the economy, one expected outcome of the scheme is likely to be the dip in gold prices as a result of it.
Mr. Raghunath said gold prices may go down as cold gold enters the market.
