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India's gold bond scheme fails to bring out private hoards

A gold bond scheme launched by the Indian government has failed woefully in its aim of retrieving some of the estimated 10,000 tonnes of gold held in private hands.

The state-owned State Bank of India launched the scheme on November 19, 1999 as part of the government's policy of bringing private gold hoards into the economy and reducing the country's dependence on imports.

"We have mobilised 5.6 tonnes of gold as of December 31. This is well below expectations," an SBI official said on Monday.

The SBI had hoped to mobilise about 100 tonnes of gold in the first year.

"People are unwilling to part with gold. This mentality has to change," the official said.

Under the scheme, the SBI accepts a minimum of 200 grammes (7 ounces) of gold, hallmarks it and issues a certificate to the depositor.

The gold must be kept with the SBI for a minimum one year, and a maximum seven years, with annual interest of 3-4 per cent.

At the end of the specified period, depositors can either retrieve the gold or its value in money.

Analyst Ashwin Arya, at gold trading house eMecklai, attributed the scheme's failure to the minimum deposit requirement and fear of prosecution.

"The average gold holding with a family is between 150 and 200 grammes. So the minimum limit should be brought down," Arya said.

"Most of the large private gold hoards have been bought with black money, so people fear tax raids and investigations. If there was an amnesty attached to the scheme, much more gold would have come out," he added.

Analysts said one other reason for the poor response was the lack of quality control by jewellers.

"When a family takes gold jewellery to the bank to be deposited under the scheme, they think they are taking 24 carat gold, but after quality control tests by the bank, they find they are holding only 18 or 22 carat gold," said an analyst in SBI.

"This means they have been cheated by the jeweller and this is a great disappointment for them and they decide to keep the jewellery."

India is the world's largest market for gold but mines a negligible quantity of the metal, making it heavily reliant on imports.

Private gold stockpiles in India are estimated to total between 10,000 and 12,000 tonnes.

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