Finance Minister Arun Jaitley along with Ravi Shankar Prasad and Piyush Goyal addressed the media after the Union Cabinet meeting. The government with this Gold Monetisation schemes wants to decrease the import of 1,000 tonnes of gold annually, stated that people hold that amount of idle gold just for investment purposes every year.
Economic Affairs Secretary Shaktikanta Das later said that the government plans to exempt capital gains made at the time of redemption of gold under the Gold Bond Scheme. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment.
While a sovereign bond plan will be an alternative to buying physical gold, a monetisation scheme will offer interest on the yellow metal deposited in banks.
Jaitley said the gold bond sale will be done only to Indian entities. The bonds will be issued in 2, 5 and 10 grams of gold for a minimum of 5-7 years to protect investors from medium-term volatility in gold prices, Jaitley said. As in the bond scheme, this too will bear a small interest and, since the Gold Deposit Scheme failed due to its high threshold – 500 grams – of gold that could be deposited with banks, the new scheme lowers this to 30 grams. The annual cap for such bonds will be restricted to 500gm per person per year. Redemption of fractional quantity (for which a standard gold bar/coin is not available) would be paid in cash. This will help reduce the demand for coins minted outside India and also help to recycle the gold available in the country.
“The gold bond scheme is much superior to Gold ETFs and would result in the assets under management for ETFs getting further eroded”. The benefit to the Government is in terms of reduction in the cost of borrowing, which will be transferred to the Gold Reserve Fund. Banks and other dealers would also be able to monetize this gold.
But there will be no dilution in Know-Your-Customer (KYC) norms and gold depositors will have to make full disclosures on the source of the precious metal, he said. With these two Gold Monetisation schemes, the government is aiming to reduce the reliance of import of gold overtime to meet the domestic demand.
The appreciation in gold’s value, if any, will accrue to the investor when the bonds are sold.
Capital gains tax treatment will be the same as for physical gold for an “individual” investor.
NBFCs/Post Offices/ National Saving Certificate (NSC) agents and others, as specified, may collect money / redeem bonds on behalf of the government (for a fee, the amount would be as decided). The risk of gold price changes will be borne by the Gold Reserve Fund that is being created. The Gold Monetisation scheme is aimed to mobilise the surplus gold holdings held with households and institutions as deposits.