Introduction

The Government of India has decided to end the Gold Monetisation Scheme (GMS), a program introduced to utilize idle gold reserves in households and institutions. The Reserve Bank of India (RBI) has provided an update regarding the existing deposits under this scheme, ensuring that all commitments made to depositors will be honored.

Reasons for Ending the Gold Monetisation Scheme

The GMS was introduced to reduce India’s dependence on gold imports and mobilize the vast reserves of gold lying unused. However, the scheme witnessed limited success due to several reasons:

Low participation from individuals and institutions: Despite offering interest on gold deposits, the scheme failed to attract significant gold reserves from the public.
Complicated implementation and withdrawal process: Many depositors found the rules around withdrawing gold to be inconvenient and restrictive.
Lack of awareness and trust: The scheme did not gain widespread acceptance due to concerns over government intervention in private gold holdings.

RBI’s Assurance on Existing Deposits

With the discontinuation of the scheme, the RBI has assured depositors that:

All deposits made under the GMS will be honored as per the agreed terms.
Interest payments and maturity benefits will be provided as per initial commitments.
There will be no impact on existing accounts, ensuring security for those who have invested in the scheme.

Impact on Gold Market and Economy

On the Gold Market

The end of the GMS could lead to a renewed focus on gold imports, potentially increasing India’s trade deficit.
Investors may turn to alternative gold investment options such as Sovereign Gold Bonds (SGBs) and gold ETFs.

On the Economy

The closure of the scheme might increase household gold hoarding, reducing gold circulation in the formal financial system.
The move could impact India’s foreign exchange reserves as higher gold imports increase demand for foreign currency.

Why This News is Important?

Relevance to Government Policy and Economy

The discontinuation of the GMS signifies a shift in the government’s approach to managing gold reserves. Policymakers may focus on alternative gold investment schemes such as Sovereign Gold Bonds (SGBs), which provide better financial control over gold demand.

Impact on Competitive Exams

Candidates appearing for banking, civil services, and financial sector exams need to understand:

The role of the Gold Monetisation Scheme and why it was discontinued.
The implications for India’s economy and foreign exchange reserves.
Alternative gold investment options that the government may promote.

Historical Context: Evolution of Gold Monetisation Schemes in India

India has introduced various gold-related financial instruments over the years to reduce gold imports and utilize domestic gold reserves effectively.

Gold Control Act (1962): Restricted private gold holdings to curb hoarding and excessive imports.
Gold Deposit Scheme (1999): Introduced by the RBI, allowing banks to accept gold deposits and issue interest-based bonds.
Gold Monetisation Scheme (2015): Launched by the Modi government to enhance gold liquidity and reduce import dependence.
Sovereign Gold Bonds (2015-Present): Introduced as a more viable alternative to physical gold holding, offering interest and tax benefits.

Key Takeaways from the End of Gold Monetisation Scheme

S.No	Key Takeaway
1	The Government of India has discontinued the Gold Monetisation Scheme (GMS).
2	The RBI has assured that all existing deposits under GMS will be honored.
3	The closure of the scheme may lead to an increase in gold imports.
4	Investors are likely to shift towards Sovereign Gold Bonds (SGBs) and gold ETFs.
5	This decision could impact India’s trade deficit and foreign exchange reserves.

Gold Monetisation Scheme India

FAQs: Frequently Asked Questions

Why has the Gold Monetisation Scheme been discontinued?
The scheme was discontinued due to low participation, complex withdrawal processes, and a lack of public awareness.
Will existing gold deposits under the scheme be affected?
No, the RBI has assured that all existing deposits will be honored as per the original terms.
What alternatives are available for gold investment?
Investors can explore Sovereign Gold Bonds (SGBs) and gold ETFs, which provide better financial returns and security.
How will this affect India’s gold imports?
The discontinuation of the scheme may increase India’s reliance on gold imports, affecting the trade deficit.
What was the main objective of the Gold Monetisation Scheme?
The primary goal was to mobilize idle gold reserves and reduce India’s dependence on gold imports.