Q7. The Craze for gold in India has led to a surge in the import of gold in recent years and put pressure on the balance of payments and the external value of the rupee. In view of this, examine the merits of the Gold Monetization scheme. 

Model Answer:

Introduction

The Gold Monetization Scheme was launched in November 2015 to address the growing concerns over gold imports in India. The scheme allows individuals and institutions to deposit their gold with banks and earn interest on it while also contributing to the country’s financial stability. 

Body

Merits of the Gold Monetisation  Scheme 

1. Decreasing Import Dependency: By monetizing gold, the scheme encourages citizens to deposit their gold instead of buying new gold, thus reducing the overall demand and imports.
2. Positive Impact on Balance of Payments: Lower gold imports can help improve India’s balance of payments, thereby stabilizing the external value of the rupee.
3. Utilization of Gold Reserves: The scheme taps into the vast amounts of gold that Indian households have, which are often idle. It converts these idle assets into productive investments.
4. Financing Economic Activities: The mobilized gold can be refined and used in various industries, boosting economic activities and employment opportunities.
5. Attractive Investment Option: Individuals can earn interest (ranging from 2.5% to 3.0%) on their deposited gold, which is a better alternative compared to keeping gold in safe custody without any returns.  
6. Boost to Gold Loan Market: Banks can utilize the deposited gold for lending purposes, thereby stimulating the economy. 
7. Reducing Price Volatility: Increased supply of gold in the market can help stabilize gold prices, making gold more affordable for consumers and reducing speculative trading. 

Conclusion

The Gold Monetization Scheme presents several merits that can significantly benefit the Indian economy. By reducing gold imports, mobilizing idle assets, providing interest earnings, and improving market stability, the scheme addresses critical economic challenges while promoting financial inclusion. However, its success hinges on effective implementation, public awareness, and trust in the banking system.  

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