Poor infra and absence of amnesty poses challenge for gold monetisation scheme

It will be difficult to collate smaller lots of gold to convert it in to a lendable quantity

The gold monetisation scheme proposed by the Union government is better than earlier tries but will face challenges, say banks and jewellers. Notably, those of limited infrastructure and lack of a tax amnesty for what is deposited.

They say hallmarking centres and refineries meeting the standard that banks require, and the logistics challenge regarding moving of gold from one place to another, will make it less attractive for banks to handle. It will be difficult to collate small lots of gold (the minimum deposit is 30g) to convert to a lendable quantity.

Ketan Shroff, spokesperson of the Indian Bullion and Jewellers Association, said: “Poor infrastructure facilities will delay the scheme’s success.” For example, the government said there are 350 hallmarking centres for testing and melting of gold, however, more than half of these don’t have a melting facility and are situated at places where permission for this will be difficult.

Tier-2 and tier-3 cities are places where gold holding is higher but they don’t have enough of such centres. There are 32 refineries in the country where banks can store gold but many of these might not meet the quality parameters needed. Bringing gold to a storage point and transferring it to borrowers of gold on loan is another logistics issue.

Bankers who manage gold deposit schemes as of now feel the new scheme is practical for them because the job of testing and melting of gold has been assigned to hallmarking centres, unlike earlier. However, banks will do a Know Your Client (KYC) exercise on depositors. “When a depositor fills the KYC form, he will be afraid of being asked the source for the gold purchase which tax authorities could ask,” said an expert on the subject.

Most gold purchases happen in cash. Even those who don’t have undisclosed money withdraw cash to pay for gold because using a credit card makes it costlier; the value-added tax burden can also be avoided in a cash purchase. The proposed scheme is silent on any amnesty for gold deposited under the scheme.

Several suggestions made to the government from jewellers had mentioned the need for this but it has not been accepted. A jeweller said that even those who purchase with a bill prefer to split these to bring the amount below Rs 5 lakh, to avoid quoting a PAN (tac card) number, to keep the income tax authorities away. Absence of an amnesty will reduce the attraction, said a Mumbai-based jeweller, preferring to remain anonymous.

HURDLES AHEAD

• 350 hallmarking centers in the country for testing and melting of gold but more than half don’t have melting facilities
   
• Banks can store gold with refineries but only a few meet banks’ requirements
   
• Logistic issue of collecting gold from hallmarking centers and sending to jewellers will also be a challenge and increase cost
   
• Depositors will fear entry of tax authorities as gold or jewellery is largely purchased by cash