Mint Explainer: Why did the govt end the gold monetization scheme?

Subscribe to enjoy similar stories. Following the premature redemption of several gold bond schemes, the government has abruptly ended yet another gold scheme launched less than a decade ago. The decision comes as the gold prices look poised to climb to ₹1 lakh per 10 grammes.

Late on 25 March, the government announced that it was discontinuing the medium- and long-term government deposit under the Gold Monetization Scheme, 2015, with effect from the next morning. That meant gold tendered at testing centres and designated bank branches would not be accepted 26 March morning. However, existing deposits are to continue till their redemption.

The medium-term deposits had a tenor of five to seven years, and the long-term ones were for 12-15 years. For now, only the short-term bank deposits (one to three years) are to continue, but "at the discretion of the individual banks based on the commercial viability as assessed by them", a government press release stated. Like the sovereign gold bond scheme, the gold monetization scheme was meant to help lower India’s imports of the yellow metal.

Mint explains why the scheme has been wound up. Rising gold imports were widening India’s trade and current account deficits. Only a small portion of these imports was used to make jewellery for exports, for industrial purposes and as underlying assets for exchange-traded funds (ETFs).

Most of it was being held by households in the form of jewellery and a small share as coins. Gold jewellery is seen as an idle asset, as it lies in lockers and safes. The gold monetization scheme was meant to encourage households and institutions to bring out some of this gold, get it converted into pure gold and interest-earning deposits with a designated