Indian government approves scheme for paperizing gold

Section:

India's Modi Moves Closer to Tapping Gold Hoard to Cut Imports

By Bibhudatta Pradhan and Swansy Afonso
Bloomberg News
Wednesday, September 9, 2015

India moved a step closer to selling gold-backed bonds and allowing banks to tap idle jewelry and bars held by households and temples to cut reliance on imports.

Prime Minister Narendra Modi's cabinet today approved the gold monetization plan and sale of sovereign bonds by the Reserve Bank of India, the government said in a statement. The plans were announced by Finance Minister Arun Jaitley in February as measures to woo Indians away from physical gold. ...

The monetization plan will allow Indians to deposit their jewelry or bars with banks and earn interest, while the banks will be free to sell the gold to jewelers, thereby boosting supply. The deposits can be for a period of one year to 15 years with the interest on short-term commitments to be decided by the banks and those on long-term deposits by the government in consultation with the central bank. ...

The plan may fail to draw people in large numbers because of Indians' inherent love for holding physical gold and low interest rates likely to be offered by the banks.

Inadequate banking facilities in rural India, which makes up for 60 percent of physical gold demand, may also scupper the plan, according to the All India Gems & Jewellery Trade Federation.

"The schemes will succeed only if the banks offer interest rates of about 2.5 percent and do not require customers to declare the source of deposited gold below a certain limit," Bachhraj Bamalwa, director of the federation, said by phone from Kolkata. "Indians' love for physical gold and investment sentiment in the rural areas, which do not believe in such investment products, will determine the success of the plans."

... For the remainder of the report:

http://www.bloomberg.com/news/articles/2015-09-09/india-s-modi-moves-clo...



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