Craze for gold in Indians has led to a surge in import of gold in recent years and put pressure on balance of payments and external value of rupee. In view of this, examine the merits of the Gold Monetization Scheme. [250 words; 15 marks; 2018]

 There are several reasons why Indians buy so much gold:

1.       Cultural significance: Gold has a significant cultural significance in India, and is often given as a gift for special occasions such as weddings, festivals, and religious ceremonies. It is also considered a symbol of wealth, prosperity, and good luck.

2.       Investment: Gold is considered a safe and stable investment option, particularly during times of economic uncertainty. Many Indians prefer to buy gold as a hedge against inflation and as a way to preserve their wealth.

3.       Lack of trust in other investment options: Many Indians lack trust in other investment options such as stocks and bonds, and prefer to invest in tangible assets like gold.

4.       Lack of financial literacy: Many Indians lack financial literacy and are not aware of other investment options that could be more profitable in the long run.

5.       Lack of access to other forms of investment: Many Indians, particularly in rural areas, have limited access to other forms of investment such as stocks and bonds.

6.       Lack of banking facilities and trust in the banking system: Many Indians, particularly in rural areas, have limited access to banking facilities and may not trust the banking system enough to deposit their money in it.

7.       Gold is a liquid asset: Gold can be easily converted into cash, making it a liquid asset that can be used to meet unexpected expenses or to invest in other opportunities.

Overall, the reasons why Indians buy so much gold are multifaceted, with cultural, financial and practical reasons playing a role.

The Gold Monetization Scheme (GMS) launched by the Government of India in 2015, has several important features that make it an attractive option for individuals and institutions to deposit their gold holdings:

1.       Flexibility: The GMS allows individuals and institutions to deposit their gold in various forms, such as gold bars, coins, and jewelry. They can choose the tenor of the deposit, ranging from 1 to 12 years.

2.       Security: The GMS provides for the safekeeping of the deposited gold with the Reserve Bank of India (RBI) or any other approved agencies, ensuring the security of the gold.

3.       Interest: Depositors will receive interest on their gold deposits. The interest rate is decided by the RBI and is linked to the prevailing domestic gold price.

4.       Tax benefits: Depositors will be eligible for tax benefits under the Income Tax Act for the deposit of gold under the scheme.

5.       Liquidity: The GMS provides depositors with the flexibility to withdraw their gold deposit prematurely, or to take a loan against the deposit.

6.       Transparency: The scheme ensures transparency in the process of acceptance, purity testing, valuation, and credit of the gold deposited.

7.       Encouraging recycling of gold: The scheme encourages recycling of gold and reduces the dependence on imports.

8.       Helping the economy: The scheme helps in reducing the current account deficit and reduces the dependence on foreign exchange.

Overall, The GMS is aimed at reducing India's dependence on imports of gold, to mobilize the idle gold held by households and institutions, and to provide an alternative to buying physical gold.