What Is The Gold Monetisation Scheme? PM Modi’s Appeal Brings Focus Back On Idle Gold

When Prime Minister Narendra Modi appealed to citizens of India to stop buying gold for a year, debates and concerns have grown over the feasibility and impact of the advice. While it is seen as a key measure to halt India’s forex outflow, which has dropped substantially in recent times after the fallout of the Iran-US war, jewellery industry bodies have raised concerns over it as it due to large-scale negative ramifications.

The All India Jewellers & Goldsmith Federation (AIJGF) said it could threaten the livelihoods of 35 million people.

With this precarious situation, when India can’t afford to lose more forex reserve over gold import, while the livelihood of hundreds of thousands of people is dependent on it, some are pitching to find a middle

path with a gold monetization scheme.

Rising from the ashes, gold monetization scheme, launched in 2015, is now looking like an alternative option, balancing the act of hindering gold import and unlocking the value of idle gold.

What Is Gold Monetisation Scheme?

The scheme aims to mobilise idle gold held by households and institutions of the country and facilitate its use for productive purposes, and in the long run, to reduce country’s reliance on the import of gold.

It comprised two scheme ‘Gold Deposit Scheme’ and Gold Metal Loan’ scheme.

It was seen as a champion attempt to unlock gold’s value, but it failed to lure customers. It attracted only a tiny fraction of 39 tonnes of gold deposits compared to the estimated 34,000 tonnes of gold held by Indian households.

Some of the parts of the scheme were discontinued after a decade of operation. However, when things are going south, industry bodies from gems and jewellery sector are now planning to request the government to revive and strengthen the Gold Monetisation Scheme, according to Moneycontrol report.

India’s gold import rose sharply by 24 per cent in FY26, costing the country about $72 billion in foreign exchange.

How Does Gold Deposit Scheme Work?

Under the scheme, consumers can deposit their gold at the Collection and Purity Testing Centres (CPTC) certified by Bureau of Indian Standards (BIS) and can get deposit certificates in equivalent of 995 fineness of gold.

They earn interest on their gold deposit for the short-term period which is decided by banks on the basis of the prevailing international lease rates, other costs, market conditions etc. The interest is borne by banks.

For the medium and long-term deposits, the rate of interest is decided by the government, in consultation with the RBI from time to time and the same is borne by the Central Govt.

The designated banks (ICICI Bank, Corporation Bank/Union Bank of India, Indian Overseas Bank, Punjab National Bank, State Bank of India, HDFC Bank, Yes Bank, Dena Bank/Bank of Baroda) accept gold deposits under the Short Term (1-3 years) Bank Deposit (STBD) as well as Medium (5-7 years) and Long (12-15 years) Term Government Deposit Schemes (MLTGD).

The Indian government discontinued medium term gold bond scheme after bearing huge losses in the form of interest and asset appreciation.

Revamped Gold Metal Loan Scheme

Under the Gold Monetisation Scheme, banks open a Gold Metal Loan (GML) account for jewellers, where the loan is measured in grams of gold instead of rupees. The gold collected from households through the scheme is lent to jewellers by banks under short-term arrangements. Once the loan is approved, jewellers receive physical gold from refiners, while banks record the quantity in the jeweller’s gold loan account.

Banks charge interest on these gold loans, with rates decided under RBI guidance. Currently, the tenure of such loans is 180 days. Since gold deposits under the scheme have a minimum lock-in period of one year, authorities may review and modify the loan duration in the future depending on how the scheme performs.