Indian Government Launches Gold Monetisation Scheme to Mobilize Idle Gold

For generations, this wealth has remained stagnant in lockers and home safes, providing little to no contribution to the broader economy. To bridge this gap, the government introduced the GMS to transform these passive assets into productive capital.

The Shift from 1999’s Gold Deposit Scheme

The current framework is not the first attempt to monetize gold. A predecessor, the Gold Deposit Scheme, began in 1999 but struggled to gain traction. That earlier version was hindered by strict conditions, including a minimum deposit requirement of 500 grams, which effectively locked out middle-class families.

The 2015 GMS corrected this barrier by lowering the minimum deposit limit to 30 grams of raw gold. This shift allowed a wider demographic to participate, though early adoption remained slow due to a lack of collection centers, complex testing procedures, and a general reluctance among families to melt down traditional jewelry.

RBI Master Directions and 2016 Modifications

Following suggestions to make the process more user-friendly, the Reserve Bank of India (RBI) issued a Master Direction on January 21, 2016, which amended previous guidelines from October 22, 2015. These changes focused on increasing the number of licensed refiners and simplifying the deposit process.

The Bureau of Indian Standards (BIS) reduced the refining experience requirement from three years to one year for those already holding National Accreditation Board for Testing and Calibration Laboratories (NABL) accreditation. To further expand the network, the BIS issued an Expression of Interest (EOI) to over 13,000 licensed jewelers to serve as Collection and Purity Testing Centres (CPTCs), provided they maintain ties with BIS-licensed refiners.

Key operational updates included allowing depositors to deliver gold directly to refiners rather than exclusively through CPTCs, a move designed to attract institutional bulk depositors. Additionally, the quantity of gold is now expressed up to three decimals of a gram to ensure consumers receive more precise value for their deposits.

Interest Rates and Deposit Tenures

The scheme provides three distinct tenure options to suit different financial needs. While there is no maximum investment limit, the interest earned depends on the duration of the deposit. Notably, short-term deposits do not pay cash interest; instead, the interest is paid in grams of gold.

Deposit Type	Tenure	Interest Rate (Annual)
Short-term Bank Deposit	1 to 3 years	2.25%
Medium-term Deposit	5 to 7 years	2.5%
Long-term Government Deposit	12 to 15 years	2.5%

For those requiring liquidity, the 2016 modifications introduced premature redemption rules. Medium-term deposits can be withdrawn after three years, and long-term deposits after five years, though both are subject to a reduction in the interest payable. The program also offers tax advantages, as profits from the scheme are exempt from capital gains, wealth, and income taxes.

Institutional Logistics and Bank Commissions

The operational side of the GMS involves a coordinated effort between the RBI, the Indian Banks Association (IBA), and licensed refiners. The IBA is responsible for communicating the list of licensed CPTCs and refiners to the banks. Banks are also permitted to hedge their positions specifically for short-term deposits.

To compensate for the costs of purity testing, refining, storage, and transportation, banks receive a 2.5 percent commission for the scheme. This fee covers the charges payable to the refiners and CPTCs. Gold of any purity can be deposited; the CPTC or refiner determines the actual purity, which then forms the basis for the issuance of the deposit certificate.

It is important to note that while gold bars, coins, and jewelry are accepted, jewelry encrusted with gems is not permitted under the plan. Furthermore, depositors will not receive their jewelry back in its original form; instead, they receive cash or gold coins and bars upon redemption.

Mobilization Progress and Economic Pressure

The government has utilized a multi-channel awareness campaign involving AIR, FM radio, print media, and SMS to encourage participation. A dedicated website and toll-free number were also established to provide scheme details. Despite these efforts, the scale of mobilization has remained modest compared to the total gold held in India; as of January 20, 2016, a total of 900.087 kilograms of gold had been mobilized.

The urgency to move gold from lockers into the economy has been exacerbated by external shocks. A sharp rise in gold prices, coupled with increasing crude oil prices due to war in West Asia, led to a rapid decline in foreign exchange reserves and an increased current account deficit. This economic pressure prompted a direct appeal from Prime Minister Modi for citizens to reduce their gold purchases.