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Sunday, November 15, 2015

Gold Monetisation Scheme - Important Topic For IAS UPSC Civil Services Examination

The government has come out with gold monetisation scheme to reduce imports of the yellow metal as well as to bring the gold lying idle with Indian households into the formal banking system for overall growth of the economy. This is an important topic for IAS UPSC Civil Services Examination and also for other competitive examinations where current affairs is part of the syllabus. I have listed the important points concerning the Gold Monetisation Scheme in point-wise format for easier understanding and retention. You can also read more such useful articles on current affairs and IAS UPSC Civil Services Exam preparation on my blog www.civil servicessynopsis.in . 

Gold Schemes of Government of India
·      Government has launched Gold Monetisation Scheme  (GMS), Sovereign Gold Bonds and Gold Coins (bearing images of Ashok Chakra and Gandhiji on opposite sides)
·      Purpose is to channelize country’s idle gold into productive use by bringing it into the formal banking system
·      India has ~22,000 tonnes of idle gold lying with households
·      It would also help in reducing import of gold as every year India imports ~1000 tonnes of yellow metal which adversely impacts India’s Foreign Exchange Reserves and also puts pressure on Current Account Deficit
·      Earlier also government has periodically tried to limit gold imports by increasing import duty but it has met with limited success

Gold Monetisation Scheme  (GMS)
·      Allows resident Indians to deposit household gold and earn interest upto 2.5%
·      Works like Fixed Deposit with minimum tenure of 1 year with provisions for premature withdrawal
·      Earning to be exempt from capital gains tax, wealth tax and income tax

Issues & Challenges
-Lack of clarity on taxation
-Reluctance to part with family jewelry due to sentimental reasons
-Number of collection centres will have to be increased significantly
-What banks can do with gold deposited with them
              
               Sovereign Gold Bonds
·      Encourage people to buy gold bonds instead of actual gold
·      To be sold through banks and designated post offices
·      Bond tenor for 8 years with minimum lock-in of 5 years
·      Interest on these bonds will be taxed as per provisions of Income Tax
        Challenge -Price of gold internationally is linked to dollar and gold bonds could become a substitute to rupee bonds, which might exert upward pressure on interest rates.

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