The Promise of Idle Gold
Launched in 2015, the Gold Monetisation Scheme (GMS) had a powerful and simple objective: to persuade Indian households and institutions to deposit their idle gold with banks. The idea was to bring a fraction of the country's colossal private gold holdings,
estimated to be over 25,000 tonnes, into the formal economy. This metal, often stored in lockers and cupboards, could then be used productively. The goals were twofold: reduce India's heavy reliance on gold imports, which puts pressure on the trade deficit, and provide the domestic jewellery industry with a ready source of raw material. Depositors would earn interest on their gold, turning a dormant asset into an income-generating one.
A Decade of Disappointment
Despite its sound logic, the scheme has significantly underperformed. Over a decade since its launch, the GMS has mobilised only about 39 tonnes of gold. This represents a minuscule fraction—less than 0.2%—of the estimated private gold stock in the country. The reasons for this lack of traction are numerous. Many potential depositors feared scrutiny from tax authorities about the source of their gold. Others were put off by a process seen as cumbersome, involving purity testing centres that sometimes undervalued their jewellery. A fundamental issue was a trust deficit; families were simply reluctant to hand over sentimental or inherited jewellery to a bank to be melted down. In fact, the scheme's performance was so poor that the government discontinued new deposits for the Medium and Long-Term options in March 2025, leaving only the Short-Term deposit component active.
The 2026 Economic Pressures
So, why the renewed push now? The primary driver is India's import bill. In the fiscal year 2026, India paid nearly $72 billion for gold imports. What's alarming for policymakers is that this record bill came despite a drop in the actual volume of gold imported. A sharp rise in global gold prices meant the country paid 24% more for about 5% less gold. This illustrates a vulnerability: India's current account deficit is highly sensitive to fluctuating international gold prices. Mobilising even a small portion of the domestic gold stock could provide a crucial buffer, reducing the need for expensive imports and strengthening the country’s external financial position. The World Gold Council has emphasised that financialising this massive, underutilised resource is key to India's future economic development.
A New Plan: Involving the Jeweller
The core of the revamped strategy for 2026 is to bring a trusted figure into the process: the neighbourhood jeweller. The new proposal, currently under serious consideration, would allow jewellers to act as collection agents for the scheme. For generations, the family jeweller has been the primary point of contact for buying, selling, and exchanging gold. Banks never held that position of trust. Under the proposed model, customers could deposit their gold with their jeweller, who would handle the initial assessment and transfer it to refiners and banks. To make this attractive, jewellers would likely earn a commission, with proposals suggesting an incentive of around 0.75% to 1% of the gold's value. This shift acknowledges that trust and convenience are the biggest hurdles the scheme has faced.
What Success Could Look Like
If the revamped scheme works, the benefits could be substantial. For the jewellery industry, it would mean access to a cheaper, domestic supply of gold, reducing their financing costs and reliance on imports. For households, it offers a more convenient way to earn returns on an asset that otherwise incurs storage costs. For the broader economy, it promises a healthier balance of payments by curbing the outflow of foreign exchange for gold imports. However, challenges remain. The success of the new model will depend on creating a transparent and efficient system for tracking the gold from the customer to the bank, ensuring depositors feel secure. Building a robust grievance redressal mechanism will also be critical to overcome the negative experiences of the past. The trade industry is optimistic, with some targeting a mobilisation of over 1,000 tonnes, a bold goal compared to the 39 tonnes collected so far.
