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India would offer tax exemption for earnings in gold paperization scheme
India Moves a Step Closer to Tapping 20,000-Ton Gold Hoard
By Siddhartha Singh and Swansy Afonso
Bloomberg News
Tuesday, May 19, 2015
India will allow citizens to deposit gold with banks to earn interest as the world's second-biggest consumer seeks to cut reliance on imports by tapping idle bullion lying with households.
Individuals and institutions can deposit a minimum of 30 grams in the form of bullion or jewelry under a so-called gold monetization scheme, according to a draft document released by the government today. The banks can set the interest rate on the deposits and the metal mobilized may be loaned to jewelers, the government said.
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Success in drawing out a part of the more than 20,000 metric tons of gold lying with households and institutions like temples may help India lower dependence on imports and ease pressure on the current-account deficit. While the plan proposes to ensure steady supply of bullion to jewelers, banks may benefit from a new business in a country where gold is bought during festivals and marriages as part of the bridal trousseau or given as a gifts in the form of ornaments. ...
The monetization plan will be limited to select cities initially as it requires a vast setup of infrastructure for secure handling of gold, according to the draft plan. Customers will have the option of redeeming deposits either in cash or in gold with a minimum tenure of one year. Investors may be exempted from paying capital gains tax, wealth tax, and income tax, the draft showed.
While the plan will help release wealth that is "trapped" in physical gold holdings into the economy, it faces the challenge of persuading people to part with gold, UBS AG analysts Edel Tully and Joni Teves said in a report on May 15. "Unless there is a fundamental change in attitudes toward gold and gold jewelry, the scheme could potentially attract only a subset of gold holdings such as scrap or unusable gold and investment-type products like bars and coins," they wrote.
Under the plan, banks may also sell the gold mobilized to generate foreign currency for lending to exporters or importers. The banks may trade on domestic commodity exchanges where mobilized gold can be delivered and may be allowed to deposit the metal with the Reserve Bank of India as part of their mandatory cash reserve and statutory liquidity ratio requirements, according to the draft rules.
A gold deposit plan run by the State Bank of India since 1999 managed to draw just 15 tons because of a requirement to deposit a minimum 500 grams and low interest rates of 0.75 percent to 1 percent, according to UBS.
"Whatever shape and form the scheme will take, there are bound to be many implementation risks," UBS said. "Creating a wide network of collection points by tapping into jewelers and other retailers is a step in the right direction in terms of expanding the scheme's reach, but is likely going to be challenging."
... For the complete report:
http://www.bloomberg.com/news/articles/2015-05-19/india-said-to-unveil-p...
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