India’s Gold Monetisation Scheme: Unlock Idle Assets

India is contemplating a renewed push for the Gold Monetisation Scheme (GMS), aiming to integrate the nation’s vast private gold reserves into the formal financial system and lessen its dependence on imports.

This initiative seeks to unlock the economic potential of an estimated 23,000-25,000 tonnes of household gold, transforming it into a productive financial asset.

Understanding the Original GMS Mechanism

Introduced in 2015, the GMS provided a structured way for individuals to deposit raw gold, including bars, coins, and jewellery without stones, with designated banks.

The process involved specific steps to ensure the gold’s quality and integration into the financial system:

• Deposited gold underwent assaying and refining to achieve 995 fineness.
• The refined gold was then credited to a gold deposit account, which accrued interest for the depositor.

However, the scheme’s medium-term and long-term government deposit options were officially discontinued on March 26, 2025.

Obstacles to Widespread Adoption

Despite establishing a regulated framework, the initial GMS struggled to achieve broad participation among Indian households.

Several critical factors contributed to its limited success:

• A prevailing lack of depositor trust, often comparing returns unfavorably with traditional rupee fixed deposits.
• Strong emotional attachment to inherited jewellery, creating a significant psychological barrier against melting these sentimental assets.
• Remarkably low public awareness, with a World Gold Council survey indicating only 6% of households were familiar with the scheme.

The Case for a Second Iteration

Advocates argue for a revitalized Gold Monetisation 2.0, citing its potential to deliver multiple economic benefits.

The scheme could contribute significantly by:

• Putting idle gold to productive economic use.
• Deepening both India’s bullion and broader financial markets.
• Supporting long-term import substitution, reducing the nation’s reliance on foreign gold.
• Improving market transparency within the gold sector.
• Complementing existing financial products such as gold loans.

However, inherent challenges persist, including the operational complexities involved in purity testing, refining, valuation, custody, and eventual redemption.

Depositors face the loss of their specific jewellery, while banks must navigate gold price volatility, liquidity concerns, and operational risks. Furthermore, weak incentives could lead banks to treat the scheme as a mere administrative task, potentially eroding trust in formal gold products.

Designing a Successful Gold Monetisation 2.0

For a successful relaunch, strategic adjustments are crucial to overcome past hurdles and foster greater public confidence.

Key tweaks for a more effective scheme include:

• Initially targeting easier-to-monetise assets like gold bars, coins, temple gold, and institutional holdings.
• Simplifying the customer experience through transparent valuation, clear timelines, digital tracking, standardized receipts, and predictable redemption options.
• Establishing defined responsibilities and service standards for participating banks and jewellers.
• Positioning the scheme as a secure, regulated mechanism for converting idle gold into productive capital, rather not primarily as a high-return investment.

Ultimately, while the economic rationale for gold monetisation remains sound, its success hinges on building robust customer confidence, making Gold Monetisation 2.0 fundamentally a trust-building program.