By Paul Ploumis 03 Aug 2015 Last updated at 07:58:17 GMT
NEW DELHI (Scrap Monster): The World Gold Council (WGC) notes that India’s proposed gold monetization scheme could immensely benefit government, investors and industry. The government must need to incentivize the scheme and market it well in order to ensure its widespread acceptance among Indian investor community, who still prefers gold as an attractive investment bet.
According to WGC, the government must strongly incentivize the scheme in the beginning years. It believes that an interest rate of around 3% would make the scheme highly attractive. However, the scheme has to be marketed smartly among investors. To make it more attractive, WGC proposes linking of the monetization scheme to dollar deposits.
The monetization scheme aims to mobilize surplus gold holdings with individuals and institutions into gold deposits. Even if the scheme is able to attract 200 tonnes of deposits every year, it could help reduce India’s gold import bill by over $9 billion in a year, which in turn could bring in more stability to country’s trade balance. Consequently, gold industry in the country will be benefited by better gold supplies rather than having to depend excessively on expensive gold imports. The government also plans to create more job opportunities in jewellery manufacturing sector. Also, the scheme allows customers to earn interest on their gold holdings.
The gold monetization scheme also allows the government to promote gold recycling in the country. Recycling accounts only for 8%-10% of the total supplies in India as compared with 30%-40% share of supplies globally.
According to WGC, the recent slide in gold prices would not take the sheen away from gold investment schemes. Short term factors could have had adverse effect on gold prices, but a recovery is on cards. It reiterates that gold is still a significant asset class.