Will Gold Monetization Scheme 2.0 Succeed? Economist Anand Srinivasan Weighs In

With reports suggesting that the Central Government is planning to reintroduce the Gold Monetization Scheme (GMS) 2.0, economist Anand Srinivasan has shared his views on the scheme`s prospects.

According to him, the government`s primary objective is to bring the estimated 30,000 tonnes of gold held by Indian households into the formal financial system. The initiative is also aimed at reducing gold imports and conserving valuable foreign exchange reserves.

However, Anand Srinivasan believes the scheme is unlikely to receive widespread public support. He explained that much of the gold jewellery owned by Indian families carries significant emotional and sentimental value, making people reluctant to deposit it with banks.

He further pointed out that jewellery deposited under the scheme is melted down, meaning the original ornaments are not returned to the depositor. Instead, participants receive the equivalent value in gold at the end of the tenure. As a result, the making charges paid on the original jewellery are lost, and fresh making charges must be paid when purchasing new ornaments. In his view, the interest earned through the scheme may not be sufficient to compensate for these additional costs.

He also noted that the Gold Monetization Scheme launched in 2015 did not achieve the expected level of success and believes the proposed Gold Monetization Scheme 2.0 could face similar challenges for the same reasons.

That said, Anand Srinivasan suggested the scheme may be more beneficial for individuals holding legally purchased gold coins with valid purchase bills. Since making charges on gold coins are relatively low, the interest earned under the scheme could provide better financial returns.

Participants can deposit their gold at designated banks or government-authorized collection centres. However, valid documents proving the legal purchase of the gold, along with proof of income, are expected to be required.

Commenting on the gold market, Anand Srinivasan said there is a possibility that gold prices could decline over the next six months, particularly during the January to March period.

He added that several factors, including petrol and diesel prices, crude oil prices, import costs, and government tax policies, will continue to play a significant role in influencing both gold prices and the broader Indian economy.