India’s Gold Monetisation Scheme Needs Overhaul Amidst Recycling Slump

India’s net gold recycling experienced a significant downturn in the April-June quarter, dropping to 19 tonnes. This marks an 11-quarter low, with a 38% decline from the previous quarter and 17% from the prior year.

This sharp reduction has prompted calls for a more appealing Gold Monetisation Scheme (GMS). Samit Guha, managing director of MMTC PAMP, emphasized the critical need for this initiative to leverage vast household gold reserves and reduce India’s reliance on imports.

Unlocking India’s Gold Reserves

Indian households hold an estimated 31,000 tonnes of gold, a substantial dormant asset. In contrast, the nation annually imports approximately 800 tonnes of gold.

• Household Gold Stock: 31,000 tonnes
• Annual Gold Imports: 800 tonnes
• Gold Recycling (April-June): 19 tonnes

The GMS, initially launched in 2015, aims to integrate a portion of this physical gold into the formal economy. It allows individuals, Hindu Undivided Families (HUFs), and trusts to deposit idle gold with commercial banks, earning interest. This mechanism is intended to boost recycling efforts.

Reviving Refining Capacity and Reducing Imports

An enhanced GMS could significantly revitalize India’s underutilized gold-refining capacity, which currently stands at about 1,800 tonnes. MMTC PAMP, the country’s sole London Bullion Market Association-accredited gold-refining unit, currently recycles around 22 tonnes of gold.

• Current Recycling: 22 tonnes annually
• Targeted Increase: 10-15% annually
• Gold Refining Capacity: 300 tonnes annually
• Silver Refining Capacity: 600 tonnes annually

The government is actively collaborating with stakeholders to reform the GMS, acknowledging its limited success since inception. A greater domestic supply of recycled gold would alleviate pressure on India’s current-account deficit by substituting imported bullion with locally sourced metal.