Golden chance to legitimize black money

Our appetite for gold is insatiable. India consumes nearly a thousand tonnes of gold a year, according to the World Gold Council, the global body that monitors the yellow metal’s production and consumption. The precious metal that is in the possession of people in the form of jewellery and bullion is estimated to be around 20,000 tonnes.  That’s conservative estimate. Indian weddings and family and festival celebrations showcase women’s gold collections. Individual investment in gold in the form of coins and bars and the precious metal adorning the deities in Hindu temples and kept in their lockers run into thousands of tonnes. Add to this gold smuggled into the country by paid carriers and brought in by NRIs and Indian tourists from abroad. It is difficult to even rough-estimate the quantity of gold hoarded by individuals over decades. If the government can mop up all the precious yellow metal, the total stock will be more than that locked up in Fort Knox!

Unfortunately, India’s gold hunger doesn’t match its output. So the government spends billions in importing gold to meet public demand. Despite its price, people buy it for various reasons. Vanity and investment top the list as the precious metal is an instrument of easy convertibility. For many, turning black money into yellow metal is an enterprise.

For a long time, successive governments have thought of various ways to curb gold consumption to save precious foreign exchange. Every attempt has met with limited success or failure simply because consumers have outsmarted the government. If the gold price goes up, smugglers have a field day and if it dips consumers make the best of it. Either way, the government is the loser. Similarly, various schemes governments has floated from time to time to get gold from the people have not yielded the desired results. In other words, it has always been a case of heads-I-win, tails-you- lose with government’s gold schemes and bonds.

Now, the Central government has announced a much-awaited scheme to get gold into its vaults from private lockers. Under the scheme, people can deposit a minimum of 30 gm gold with a bank either in the form of coins or biscuits or jewellery for fixed tenures, much like FDs.  Banks will pay interest on the gold deposits and they can fix interest rates individually. The interest thus earned is exempt from income and capital gains tax. After the tenure, depositors can either take back the gold or cash in lieu of the metal at the rates prevailing at that time.

The government hopes to collect substantial quantities of gold and sell it to traders at market prices to reduce gold imports. It’s a golden dream that may remain unfulfilled because of people’s strong bond with the yellow metal. None pawns or sells ornaments and jewellery unless he/she is in dire straits. More important is banks won’t accept gold in the form of jewellery under the deposit scheme. It has to be melted and the metal’s purity has to be certified by an authorized centre. Even if a customer goes through the process, he/she wants to convert gold bars into jewellery, the person has to spend considerable money on making charges. Overall, the depositor may end up losing on conversion and reconversion of jewellery. That means the scheme will not be attractive for ordinary people.

However, the scheme can prove to be a golden opportunity for those who want to convert their unaccounted money into gold and deposit it in a legitimate manner. Then, is the scheme intended to suck in black money through a golden door?

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