Gold Monetisation Scheme (GMS): गोल्ड मोनेटाइजेशन स्कीम (GMS)

Why in News ? The Government of India, as announced on March 25, 2025, has decided to end the medium-term (5-7 years) and long-term (12-15 years) deposit options under the Gold Monetisation Scheme (GMS). This scheme was initially launched in November 2015 to encourage people to deposit their idle gold in banks for productive use.

1. Continuation of Short-Term Deposits:
   • Short-term deposits (1-3 years) under the GMS will continue. These deposits are managed by banks, and the gold deposited is assessed for commercial viability by the Ministry of Finance.
2. Reason for Discontinuation:
   • The decision to discontinue medium and long-term deposits stems from a spike in gold prices and a lack of interest in these deposit categories. The Finance Ministry noted that the scheme, in its current form, was not effective due to low participation.
3. Performance of the Scheme:
   • Since its launch in 2015, the GMS has seen limited success. Only 5 grams, 10 grams, 50 grams, and 100 grams of gold were deposited for terms of 5-7 years, indicating poor participation. The total gold deposited under the scheme was 500 grams per person annually, which is significantly low.
4. Impact of Gold Price Surge:
   • A recent spike in gold prices has led to discontinuance of sovereign gold bonds, which are linked to the GMS. This price surge has also affected the scheme’s viability, as depositors were not earning sufficient returns compared to market conditions.
5. Role of Banks and Market Conditions:
   • Banks managing the short-term deposits will continue to operate under the scheme. However, the overall gold market has been influenced by rising prices, international lease rates, and other economic factors, making the medium and long-term deposits less attractive.
6. Interest Rates and Returns:
   • The interest rates for GMS deposits were fixed at 2.25% for medium-term and 2.5% for long-term deposits. However, with gold prices rising, these rates were not competitive, leading to low participation.
7. Future of the Scheme:
   • From March 26, 2025, only short-term deposits will be accepted under the GMS. The government aims to review and possibly revamp the scheme to make it more appealing in the future.

In summary, the article highlights the government’s decision to scrap medium and long-term gold deposits under the GMS due to low participation, rising gold prices, and lack of commercial viability, while allowing short-term deposits to continue with a focus on improving the scheme’s effectiveness.

About Gold Monetisation Scheme (GMS)

In English:

The Gold Monetisation Scheme (GMS) was launched by the Government of India in November 2015 to mobilize idle gold lying with households, trusts, and institutions. The scheme aimed to channel this gold into the formal economy and reduce the country’s reliance on gold imports, thereby helping to lower the current account deficit.

Key Features:

1. Types of Deposits:

   • Short-Term Bank Deposits (1-3 years): Managed by banks with interest rates decided by them.

   • Medium-Term Government Deposits (5-7 years): Interest rates set by the government.

   • Long-Term Government Deposits (12-15 years): Interest rates also set by the government.

2. Interest Rates: Depositors earned interest on the gold they deposited. For medium-term deposits, the interest rate was 2.25%, and for long-term deposits, it was 2.5%.

3. Eligibility:

   • Individuals, HUFs (Hindu Undivided Families), trusts, and institutions were eligible to deposit gold.

   • Gold in the form of jewelry, coins, or bars could be deposited.

4. Benefits:

   • Depositors earned interest on their idle gold.

   • The scheme contributed to reducing the economic burden of gold imports on India.

5. Discontinuation of Medium-Term and Long-Term Deposits:

   • The government announced that these deposits would be discontinued from March 26, 2025, citing performance issues and evolving market conditions.

6. Short-Term Deposits to Continue:

   • Short-term deposits will remain operational, and individual banks will determine their viability.