<b>Sitharam Gurumurthi:</b> Bringing temple gold into the mainstream

In an article in The Hindu Business Line on July 2, 2002, the late Murli Deora, then a member of the Rajya Sabha and a long-standing friend of the late Dhirubhai Ambani, recalled that the latter, a few days before his final illness, had lamented that the country's surging foreign exchange reserves were unproductively deployed: "What is the use? The government is investing them in US Treasury Bonds which yield 2.5 per cent while borrowing at 11 per cent."

In a study on convertibility of the rupee on the capital account published in the Economic and Political Weekly in September 2006, I had drawn attention to a school of thought which contends that if the reserves exceed external debt, 10-25 per cent of the reserves should be invested in refined gold as a buffer against any exogenous shocks to the currency. In 2009, the Reserve Bank of India bought 200 tons out of 412 tons of gold offered for sale by the International Monetary Fund to its member countries. That helped enhance the country's gold holdings above 500 tonnes. The table alongside gives details of the gold holdings of major countries in the world.

The World Gold Council has estimated gold holdings in India at 22,000 tonnes. Of this quantity, temples hold 3,000-4,000 tonnes, according to an estimate made by Business Standard in March 2016 after talking to bankers and bullion analysts and studying research reports. The table alongside gives a rough break-up of gold holdings with temples in India.

Sri Venkateswara Temple at Tirumala gets about one tonne of gold every year in the form of ornaments as offerings from its devotees. This gold is sent to the government mint at Mumbai for conversion into gold bars. This temple, which had deposited 4.2 tonnes of gold with the State Bank of India under the old gold deposit scheme, has now deposited 1,311 kg of gold with Punjab National Bank under the new Gold Monetisation Scheme that allows long-term and medium-term deposits to be redeemed in gold.

Minister of State for Finance Jayant Sinha informed the Lok Sabha last month that eight temples - four from Tamil Nadu, two from Maharashtra, and one each from Andhra Pradesh and Jammu and Kashmir - have deposited gold under this scheme and that 2,820 kg of gold have so far been mobilised under the scheme. Though this quantity may not be significantly large, it should be considered a good beginning and is bound to attract more temples in the near future, as these gold deposits will fetch them an interest rate of around 1.75 per cent. In this connection one may note that the Vatican Bank, officially known as the Institute for the Works of Religion (IOR), keeps gold worth over $20 million with the US Federal Reserve, while banks in England and Switzerland hold the remainder of the Vatican gold.

Even if 1,000 tonnes of gold holdings could be mobilised under this scheme, the country's gold holdings could cross 1,500 tonnes, and this will place India close to China in total gold holdings. As noted in the beginning, gold reserves form an important part of a country's reserves and can insulate the currency from exogenous shocks. The central government and the Reserve Bank of India should try to make the scheme more attractive in order to encourage temples to deposit their gold holdings with the country's public sector banks.

The writer is a former official of the International Monetary Fund