The Reserve Bank of India holds 357.75 tons of gold forming about 6 per cent of the current value of its total foreign exchange reserves.
The evolution of the gold related policy since independence was centered around some major objectives, viz., weaning away people from gold, regulating the supply of gold, reducing the domestic demand and prices and curbing smuggling.
In the wake of the Chinese war, it was felt in some circles that it would be feasible to make a frontal attack on demand for gold in India.
Accordingly, the Gold Control Order 1962 was issued, banning the making and selling of jewellery above 14 carats, making it compulsory for gold smiths to be licensed and submit accounts of all gold received and utilized by them etc.
The measures met with lot of resistance and criticism. This coupled with complexities resulted in the failure of the Gold Control order.
Bullion imports and exports were also banned but restrictions on import of gold into the country resulted in the flourishing of smuggling and unofficial transactions in foreign exchange.
Official imports to discourage smuggling was first mooted in 1977 but viewed against the forex reserves available then, it was thought as an impossible proposition. The Government decided to sell confiscated gold in small quantities through the RBI. However, it did not have any major impact on smuggling.
Gold Mobilisation Schemes
The government and RBI took several initiatives to tap the hoard of private gold in India by permitting commercial banks to take gold deposits of bars, coins or jewellery against payment of interest.
- The 15-year Gold Bonds at 6.5 percent introduced in November 1962 could mobilise only 16.70 tons of gold.
- A second attempt to garner gold was made through the 7 percent Gold Bond 1980 Scheme in March 1965, which could mobilise only 6.1 tons.
- The third attempt with National Defense Gold Bonds 1980 (1965) garnered 13.7 tons and the Gold Bond Scheme 1993 garnered 41 tons of gold.
- Gold Deposit Scheme launched in 1997 could mobilise only 7 tons of gold after two tears of its launch
- The government announced a new initiative in its 1999/2000 budget to tap the hoard of private gold in India by permitting commercial banks to take gold deposits of bars, coins or jewellery against payment of interest. Each bank can set their own interest levels with deposits period ranging in between three to seven years. Interest and any capital gains on the gold will be exempt from tax.
The banks can lend the gold to local fabricators or sell it in the Indian market or to local banks. However, the depositor has to declare the origin of the gold, so that metal bought illegally to hide wealth cannot be deposited. The State Bank of India was the first to accept deposits. To date, the amount of gold collected under this scheme was 10 tons.
Unfortunately, the scheme has not evoked the expected response. A number of reasons can be cited for the low response, prominent among them being. - Depositors' losing the making charges spent on jewellery (as the banks would convert them into primary form before accepting as deposits)
- The low cartage of jewellery
- Low rate of return on deposit (as seen by the depositors).
