Introduction
In November 2015, the Indian government introduced the Gold Monetisation Scheme (GMS) to bring together gold held by households and institutions in the country and encourage its use for productive purposes, with an aim to reduce the country’s dependency on gold imports. Through GMS, the government revamped and linked together the existing Gold Deposit Scheme and Gold Metal Loan Scheme; allowed investors to earn term deposits, along with security and interest earnings, on their gold investments. In addition, the scheme enabled investors to save on gold storage costs and benefit from GMS deposit returns and thereby, relieved the government from bearing the cost of borrowing.
The scheme aims to encourage gold investments and unlock an estimated 25,000 tonnes of privately held gold stocks worth >US$ 1.5 trillion, most of which is stored idle in lockers across the country.
Need for GMS
According to the World Gold Council Report, the country’s gold demand stood at 974.8 tonnes in 2013, wherein a significant amount of gold was imported to meet this demand. Between 2009-10 and 2012-13, gold imports accounted for ~30% India's trade deficit. To reduce the trade deficit, in 2013, the government implemented high excise duties and import payment restrictions to curtail gold imports. This resulted in temporary drop in gold imports; however, led to an increase in gold smuggling.
Despite the government's efforts to limit gold imports, in 2014, India’s gold demand was the largest in the world at 842.7 tonnes, which accounted for 26.2% of the global gold demand. Following this, a report by WGC indicated that, in 2014, the amount of gold held in India stood at ~21,000 tonnes, worth >Rs. 52 lakh crore (US$ 712 billion), that was stored idle in households and temples. Of the total estimated gold, Indian temples held ~3,000-4,000 tonnes, with most gold sitting idle in the temple vaults.
With this, the government realised that tapping the gold stored within the country and restricting gold imports were the key parameters to address the country's excessive demand for gold.
In 2015, the government introduced numerous schemes such as Gold Monetisation Scheme (GMS), Indian Gold Coin and Sovereign Gold Bond to mobilise idle gold in India and therefore, reduce the country’s dependency on gold imports.
Moreover, eight months after the commencement of GMS, as of July 2016, the government collected ~3.1 tonnes of gold from temples and households, where temples—as opposed to households—had contributed to most of this collection.
To strengthen the GMS, the government amended the scheme in February 2021 to transform banks and large jewellery retailers into BIS-certified gold collection centres and therefore, encourage domestic gold to enter the GMS system.
Gold Monetisation Scheme Details
The Gold Monetisation Scheme can be categorised as follows:
- Short-term gold deposits (1-3 years)
- Medium-term gold deposits (5-7 years)
- Long-term gold deposits (12-15 years)
In February 2021, the Ministry of Finance approved amendments to Gold Monetisation Scheme and Indian Gold Coin Scheme, with the goal of making these schemes simpler, more appealing, and more successful. The revised GMS offers the following options to investors:
Minimum investment limit
In the revised GMS, the minimum deposit limit has been lowered from 30 grams to 10 grams, with no maximum limit, allowing a wider range of people to open gold deposit accounts.
In addition, investors would earn 2.25% interest and 2.50% interest on medium- and long-term gold deposits within 5-7 years and 12-15 years, respectively..
Increased participation of banks and jewellers
The revised GMS allowed all banks (public sector banks and private banks) and jewellers to participate in the scheme and offer it on demand. This move was a significant step to improve the scheme's ability to tap privately held gold stocks more efficiently. Moreover, this is likely to augment the use of domestic gold stocks to meet the domestic manufacturing sector’s demand for precious metals and boost the availability of gold metal loans for the jewellery industry.
Jewellers as collection and purity testing centres (CPTCs)
The revised GMS aimed to incentivise jewellers by allowing them to participate as ‘Gold Mobilisation Agents’ and ‘Collection and Purity Testing Centres’ (CPTCs). This move will benefit jewellers by creating additional revenue streams. Also, the extended participation of jewellers is likely to drive their existing customers into the scheme, making GMS more accessible and boosting its adoption.
Gold Monetisation Scheme Banks
As per MCX Futures (Multi Commodity Exchange of India Limited), in FY21, GMS collection recorded >42 tonnes of precious metals, indicating a significant improvement over the previous years.
According to the Finance Ministry, under the Gold Monetisation Scheme, six banks, led by the State Bank of India (SBI), mobilised 68% more gold YoY from households and temple trusts, at 4.643 tonnes in FY20, compared with 2.763 tonnes in FY19. Of the total amount, SBI held the largest 94% (4.370 tonnes), bringing the bank’s cumulative gold mobilisation at 13.212 tonnes. It was followed by HDFC Bank (209.99 kg or 0.20999 tonnes), Nova Scotia Bank (40 kg or 0.04 tonnes), Indian Overseas Bank (15 kg or 0.015 tonnes), ICICI Bank (6.09 kg or 0.00609 tonnes) and Punjab National Bank (1.51 kg or 0.00151 tonnes).
As per the annual report of Finance Ministry for 2023-24, approximately 30.15 tonnes of gold were mobilised under GMS till March 2024 with 10 participating banks and 5,193 depositors. Out of these 30.15 tonnes, 7.459 tonnes of gold were under short term deposits, 9.369 tonnes under medium term deposits and 13.331 tonnes under long term deposits.
State Bank of India mobilised 2.562 tonnes of gold under GMS and 4.816 tonnes under gold bonds during FY24.
Key Developments
As of November 2024, approximately 31,164 kilograms of gold had been mobilised under the Gold Monetisation Scheme (GMS), with 7,509 kg in short-term deposits, 9,728 kg in medium-term deposits, and 13,926 kg in long-term deposits. Around 5,693 depositors participated in the scheme.
The Ministry of Finance announced on March 25, 2025, that the Gold Monetization Scheme (GMS) will be discontinued for medium-term (5-7 years) and long-term (12-15 years) deposits starting from March 26, 2025. Short-term bank deposits (1-3 years) will continue at the discretion of individual banks, based on their assessment of commercial viability. Whereas existing medium-term and long-term deposits will continue until their maturity. Depositors can redeem their gold as per the original terms.
Road Ahead
Since its launch in November 2015, the gold monetisation scheme posted significant growth. In FY21, through gold schemes (including GMS, gold bonds and sovereign coins), the estimated procured gold and its equivalent, by the government stood at Rs. 20,227 crore (US$ 2.76 billion), 5x higher than Rs. 3,870 crore (US$ 529.55 million) the amount collected in FY20.
In 2021, the government’s move to revamp the GMS addressed strategic areas—such as increased bank participation, dematerialisation of medium- and long-term gold deposit certificates and incentivise jewellers to engage—to make it more accessible and affordable.
The national secretary of the India Bullion & Jewellers Association, Mr. Surendra Mehta, stated that the revamped gold monetisation scheme will introduce significant changes in the bullion and jewellery sector. He emphasised that the reduction of the minimum deposit requirement to 10 grams, allowing banks to purchase Indian gold through exchanges, and involving jewellers in the GMS were significant steps. These changes are expected to facilitate the mobilization of idle gold stored in lockers, making the process comparatively easier.
As per World Gold Council (WGC), increased GMS participation can mitigate the adverse impact of gold imports on India's current account deficit, especially amid rising import duties. However, to reintegrate significant amounts of household gold into India's economy, greater efforts are needed to generate interest and boost participation in the scheme and development of gold-backed financial products on gold spot exchanges could help in encouraging the financialisation of gold in India.
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