India, one of the largest consumers of gold globally, introduced the Gold Monetization Scheme (GMS) and Medium and Long-Term Government Deposit (MLTGD) to unlock idle gold held by households and institutions. Launched in 2015, the scheme aimed to reduce the country’s dependence on gold imports, mobilize gold lying unused, and bring it into the formal economy. However, nearly a decade later, the discontinuation of the Gold Monetization Scheme by the government has raised questions about its effectiveness, operational challenges, and policy direction.
Context- The Gold Monetization scheme was launched with the aim to allow individuals, institutions, and even government entities to deposit idle gold in banks and earn interest instead of storing it in lockers. However, this year the Government of India has discontinued Medium-Term and Long-Term Government Deposits (MLTGD) under the Gold Monetization Scheme (GMS) from March 26, 2025.
Understanding the Gold Monetization Scheme (GMS) MLTGD
- Launched in November 2015 by the Government of India.
- Aims to mobilize idle gold (estimated 20,000–25,000 tonnes in households/institutions) for productive use.
- Part of the larger strategy to reduce gold imports, manage trade deficits, and formalize gold holdings.
Objectives of the Gold Monetization Scheme (GMS)
- Reduce reliance on gold imports, curbing the Current Account Deficit (CAD).
- Convert domestic gold into interest-bearing assets.
- Support the gems and jewelry sector with easier access to gold.
- Strengthen financial inclusion by integrating gold savings into the formal economy.
Key Features of the Gold Monetization Scheme (GMS)
- Deposit Types:
- Short-term (1–3 years): Gold Savings Account.
- Medium-term (5–7 years) and Long-term (12–15 years): Fixed deposits.
- Minimum Deposit: 30 grams (raw gold, coins, jewelry).
- Purity Standards: Minimum 995 fineness for gold bars; purity testing via BIS-certified centers.
- Interest Rate: Set by banks (0.5%–2.5% p.a.), paid in gold or cash.
- Eligibility: Resident Indians, trusts, temples, charities.
Operational Mechanism of the Gold Monetization Scheme
- Deposit: Gold handed to BIS-certified collection centers for testing.
- Purity Assessment: Melted to determine quantity and quality.
- Certificate Issued: Depositor receives a gold deposit certificate.
- Redemption: At maturity, depositor can opt for cash (market price) or physical gold.
Benefits of the the Gold Monetization Scheme
- For Economy:
- Reduces CAD by cutting gold imports.
- Enhances liquidity in the financial system.
- For Individuals:
- Earn interest on idle gold.
- Safe storage and tax benefits (exemptions on capital gains if held long-term).
- For Government: Strengthens forex reserves by recycling domestic gold.
Challenges of the Gold Monetization Scheme
- Cultural Factors: Emotional attachment to gold as heirloom/status symbol.
- Infrastructure Gaps: Limited BIS-certified purity testing centers.
- Taxation: Interest income taxable; capital gains tax on redemption.
- Low Awareness: Limited outreach in rural areas.
Comparison with Other Schemes– Gold ETFs vs GMS
| Feature | GMS | Sovereign Gold Bonds (SGBs) | Gold ETFs |
| Nature | Physical gold deposit | Paper gold (govt. bonds) | Market-linked securities |
| Returns | Interest + price appreciation | Fixed interest + price appreciation | Price appreciation only |
| Taxation | Interest taxable | Tax-free interest (if held to maturity) | Capital gains tax applicable |
| Liquidity | Low (lock-in periods) | Moderate (tradable on exchanges) | High (traded daily) |
Government Initiatives to Promote Gold Monetization Scheme
- Tax Reforms: Exempted capital gains tax on redemption for long-term deposits.
- Awareness Drives: Collaborations with temples (e.g., Tirupati) to deposit gold.
- Infrastructure Boost: Expanded BIS-certified centers to 55+ cities.
Why did the Government of India discontinue the Medium-Term and Long-Term Government Deposits under the Gold Monetization Scheme?
1. Evolving Market Conditions-
- Surge in Gold Prices: Gold prices rose by 41.5% (from ₹63,920 to ₹90,450 per 10 gm between Jan 2024 and Mar 2025), driven by geopolitical tensions and global economic uncertainties. This increased the government’s liability on interest payments for MLTGD, as payouts were linked to gold’s market value.
- Shift in Investor Preferences: Rising gold prices made physical gold more attractive as a “safe haven,” reducing incentives for households to deposit gold under long-term schemes.
2. Poor Performance of MLTGD
- Low Participation: Despite launching in 2015, only 31,164 kg (31.16 tonnes) of gold was mobilized under GMS by November 2024
- Structural Issues: Cultural attachment to physical gold, lack of trust in institutional deposits, and cumbersome procedures (e.g., purity testing) deterred households and temples from participating.
3. Fiscal Burden and Risk Mitigation
- Government Liability: For MLTGD, the Central Government bore the interest cost (2.25% for medium-term, 2.5% for long-term), which became a high-cost liability amid rising gold prices.
- Reducing Future Commitments: Discontinuing MLTGD allows the government to avoid future interest obligations and hedge against gold price volatility risks. Short-term deposits, managed by banks, shift the financial burden to the private sector.
4. Strategic Recalibration of Gold Policies
- Focus on Short-Term Deposits: Short-term deposits (1–3 years) will continue at banks’ discretion, as they are more aligned with depositors’ liquidity needs and banks’ commercial viability.
- Parallel Discontinuation of Sovereign Gold Bonds (SGBs): The government also halted SGBs, citing high borrowing costs. This indicates a broader shift away from state-managed gold schemes toward market-driven solutions.
5. Administrative and Operational Challenges
- Infrastructure Gaps: Limited BIS-certified purity testing centers and procedural delays in deposit processing reduced efficiency.
- Taxation Issues: Interest income from MLTGD was taxable, making it less attractive compared to alternatives like gold ETFs or physical holdings with tax-free appreciation.
Impact of the Decision
- Existing Deposits: MLTGD deposits made before March 26, 2025, will remain valid until maturity.
- Future Strategy: Banks can still offer short-term deposits, reflecting a shift to decentralized, market-responsive mechanisms for gold monetization.
The discontinuation of MLTGD reflects a pragmatic response to underutilization, fiscal risks, and changing investor behavior. While the scheme aimed to reduce gold imports and CAD, structural and cultural barriers limited its success. The government’s focus now appears to be on streamlining gold policies through short-term, bank-managed instruments and import duty adjustments.
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