Cabinet approves two gold schemes

The Indian government approved two gold schemes, which was announced at the Cabinet meeting by finance minister Arun Jaitley during his budget speech. The intent is to curb India’s gold imports and maintain its current account deficit, reports say. The two approved schemes - the sovereign gold bond scheme and the gold monetization scheme would reduce the physical demand for gold and make it a productive asset, reports add.

The Reserve Bank of India will issue the sovereign gold bond on behalf of the finance ministry. The bonds will have an annual cap of 500gm per person per year and its interest rate would be decided periodically. Its denominations would be in two, five, ten gm of gold and other denominations, with a minimum tenor of five to seven years, reports say.

The gold monetization scheme allows deposits to be short-term (1-3 years), medium-term (5-7 years) and long-term (12-15 years). Banks would decide on interest rates of short-term deposits and will be denominated in grams of gold, the government would decide interest rate on medium- and long-term deposits in consultation with the Reserve Bank of India from time to time and will be payable in rupees, reports say.

The government is to create a gold reserve fund as a buffer to take the risks of gold price fluctuations. The government views these gold schemes would encourage the Indian gold consumer to look upon their gold reserves as any financial instrument that earns interest. The gold monetization scheme permits customers to be free of capital gains tax, wealth tax and income-tax, and the interest will be non-taxable.

The short-term deposits and interest can be redeemed for cash or gold, but the medium- and long-term deposits can be only redeemed in cash, based on the prevailing market price.

The approval sent a boost to stocks of jewellery companies. Stocks like Shree Ganesh Jewellery on Bombay Stock Exchange (BSE) rose 7.28 percent, PC Jeweller increased 2.94 percent, while Tara Jewels was up by 1.06 percent, reports say.