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Jaitley's Gold Deposit Scheme Draws Mixed Reaction

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Jaitley's Gold Deposit Scheme Draws Mixed Reaction

India imports 800-1000 tonnes of gold every year, the highest in the world. To dissuade gold imports, which are a drain on precious foreign reserves, Finance Minister Arun Jaitley on Saturday outlined three proposals in his Budget speech.

Among the Budget proposals is a gold deposit or monetisation scheme, which aims to tap at least a part of the estimated 20,000 tonnes of gold stock in the country. The government will pay interest for gold deposits under the scheme.

For K Kamalhasnan, a 47-year-old small scale businessman from Kerala, the chance of earning regular interest on his gold is tempting.

"The scheme is appealing because it offers interest on regular basis for gold which otherwise is in lockers or homes... And we even get back our pure gold," Mr Kamlahasnan says.

But not everyone is excited. 45-year old school teacher Vidya says gold jewellery has sentimental value and is bought with a purpose. The idea of depositing it with banks, in a scheme where the gold returned is not in the same form as that deposited, has no appeal.

"I don't want anything to do with this scheme. We buy jewellery which then becomes part of tradition and remains precious. If we were getting interest and same jewellery back after certain years, it would have been icing on the cake. But not this," she adds.

According to banking experts, the interest on gold deposits will be derived from the premium that the government will get from the market based on trading.

S Adhikesavan, chief general manager, State Bank of Travancore, says, "The government can make use of this as a substitute for imports. People monetise the gold, give it to the government... I believe the government will release it into the market and hedge it forward and on the date of maturity they will return gold, matching it with the gold deposited and release it into the market meanwhile."

Gold coins are often seen as an investment option - and even those coins might see changes.

Thomas John Muthoot, chairman and MD of Muthoot Fincorp Ltd, says, "The so called super rich invest in this more because the gold coins are often imported. If we are able to make coins domestically within the country with the Ashok Chakra ...and it can come in different denominations from 1gm to 8gm or 20 gms - the low income and the rich both can invest, if denominations are right."

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