A PROJECT REPORT ON

SWOT ANALSIS GOLD MONETISATION

SCHEME (GMS) 2015
In the subject Research Manangement
SUBMITTED TO
UNIVERSITY OF MUMBAI
SEMESTER I V
M.COM (ADVANCED ACCOUNTING PARTI I)

BY
NAME OF STUDENT
(PRASHANT SHINTRE)
ROLL NO (15-9691)
YEAR 2015-16

DECLARATION
I

PRASHANT SHINTRE

Roll No.

15-9691,

the student of M.Com

(Accountancy) Semester IV (20116), K. V. Pendharkar

College, Dombivli,

Affiliated to University of Mumbai, hereby declare that the project for the subject
Strategic Management of Project report onSwot Analsis Gold Monetisation
Scheme (GSM) 2015 submitted by me to University of Mumbai, for semester I
examination is based on actual work carried by me.

I further state that this work is original and not submitted anywhere else for any
examination.

Place: Dombivli
Date:

Signature of the Student

(PRASHANT SHINTRE)
(Roll No: - 15-9691)

ACKNOWLEDGEMENT

It is a pleasure to thank all those who made this project work possible.
I Thank the Almighty God for his blessings in completing this task. The
successful completion of this project is possible only due to support and
cooperation of my teachers, relatives, friends and well-wishers. I would
like to extend my sincere gratitude to all of them.
I am highly indebted to Principal Mrs. Alaka Ranade, Coordinator
CA.Prasad Limaye, and my subject teacher Prashant Naik. for their
encouragement, guidance and support.
I also take this opportunity to express sense of gratitude to my parents
for their support and co-operation in completing this project.
Finally I would express my gratitude to all those who directly and
indirectly helped me in completing this project.

Name of the student

PRASHANT SHINTRE

SWOT analysis
A SWOT analysis (alternatively SWOT matrix) is a
structured planning method used to evaluate the
strengths, weaknesses, opportunities and threats
involved in a project or in a business venture. A SWOT
analysis can be carried out for a product, place, industry
or person. It involves specifying the objective of the
business venture or project and identifying the internal
and external factors that are favorable and unfavorable to
achieve that objective. Some authors credit SWOT to
Albert Humphrey, who led a convention at the Stanford
Research Institute (now SRI International) in the 1960s
and 1970s using data from Fortune 500 companies.
However, Humphrey himself does not claim the creation
of SWOT, and the origins remain obscure. The degree to
which the internal environment of the firm matches with
the external environment is expressed by the concept of
strategic fit.
Strengths: characteristics of the business or
project that give it an advantage over others.
Weaknesses: characteristics that place the
business or project at a disadvantage relative to
others.
Opportunities: elements that the business or
project could exploit to its advantage.

 Threats: elements in the environment that could

cause trouble for the business or project.
Identification of SWOTs is important because they can
inform later steps in planning to achieve the objective.
First, the decision makers should consider whether the
objective is attainable, given the SWOTs. If the objective
is not attainable a different objective must be selected
and the process repeated.
Users of SWOT analysis need to ask and answer questions
that generate meaningful information for each category
(strengths, weaknesses, opportunities, and threats) to
make the analysis useful and find their competitive
advantage.

Internal and external factors

So it is said that if you know your enemies and know
yourself, you can win a hundred battles without a single
loss. If you only know yourself, but not your opponent,
you may win or may lose. If you know neither yourself nor
your enemy, you will always endanger yourself.

SWOT analysis aims to identify the key internal and

external factors seen as important to achieving an
objective. SWOT analysis groups key pieces of
information into two main categories:
1. internal factors the strengths and weaknesses
internal to the organization

2. external factors the opportunities and threats

presented by the environment external to the
organization
Analysis may view the internal factors as strengths or as
weaknesses depending upon their effect on the
organization's objectives. What may represent strengths
with respect to one objective may be weaknesses
(distractions, competition) for another objective. The
factors may include all of the 4Ps; as well as personnel,
finance, manufacturing capabilities, and so on.
The external factors may include macroeconomic
matters, technological change, legislation, and
sociocultural changes, as well as changes in the
marketplace or in competitive position. The results are
often presented in the form of a matrix.
SWOT analysis is just one method of categorization and
has its own weaknesses. For example, it may tend to
persuade its users to compile lists rather than to think
about actual important factors in achieving objectives. It
also presents the resulting lists uncritically and without
clear prioritization so that, for example, weak
opportunities may appear to balance strong threats.
It is prudent not to eliminate any candidate SWOT entry
too quickly. The importance of individual SWOTs will be
revealed by the value of the strategies they generate. A
SWOT item that produces valuable strategies is
important. A SWOT item that generates no strategies is
not important.

Use
The usefulness of SWOT analysis is not limited to profitseeking organizations. SWOT analysis may be used in any
decision-making situation when a desired end-state
(objective) is defined. Examples include: non-profit
organizations, governmental units, and individuals. SWOT
analysis may also be used in pre-crisis planning and
preventive crisis management. SWOT analysis may also
be used in creating a recommendation during a viability
study/survey.

Strategy building
SWOT analysis can be used effectively to build
organization or personal strategy. Steps necessary to
execute strategy-oriented analysis involve: identification
of internal and external factors (using popular 2x2
matrix), selection and evaluation of the most important
factors and identification of relations existing between
internal and external features.
For instance: strong relations between strengths and
opportunities can suggest good condition of the company
and allow using aggressive strategy. On the other hand,
strong interaction between weaknesses and threats could
be analyzed as potential warning and advise for using
defensive strategy.

Matching and converting

One way of utilizing SWOT is matching and converting.
Matching is used to find competitive advantage by
matching the strengths to opportunities. Converting is to
apply conversion strategies to convert weaknesses or
threats into strengths or opportunities. An example of
conversion strategy is to find new markets. If the threats
or weaknesses cannot be converted, a company should
try to minimize or avoid them.

Criticism
Some findings from Menon et al. (1999) and Hill and
Westbrook (1997) have suggested that SWOT may harm
performance, and that "no-one subsequently used the
outputs within the later stages of the strategy ".

SWOT variants
Various complementary analyses to SWOT have been
proposed, such as the Growth-share matrix and Porter
five forces analysis.
TOWS
Heinz Weihrich said that some users found it difficult to
translate the results of the SWOT analysis into meaningful
actions that could be adopted within the wider corporate

strategy. He introduced the TOWS Matrix, a conceptual

framework that helps in finding the most efficient actions.

SWOT landscape analysis

The SWOT-landscape systematically deploys the

relationships between overall objective and underlying
SWOT-factors and provides an interactive, query-able 3D
landscape.
The SWOT-landscape grabs different managerial
situations by visualizing and foreseeing the dynamic
performance of comparable objects according to findings
by Brendan Kitts, Leif Edvinsson and Tord Beding (2000).
Changes in relative performance are continually
identified. Projects (or other units of measurements) that
could be potential risk or opportunity objects are
highlighted.
SWOT-landscape also indicates which underlying
strength/weakness factors that have had or likely will
have highest influence in the context of value in use (for
ex. capital value fluctuations).

Corporate planning

As part of the development of strategies and plans to

enable the organization to achieve its objectives, that
organization will use a systematic/rigorous process known
as corporate planning. SWOT alongside PEST/PESTLE can
be used as a basis for the analysis of business and
environmental factors.
Set objectives defining what the organization
is going to do
Environmental scanning
o Internal appraisals of the organization's
SWOT, this needs to include an assessment
of the present situation as well as a portfolio
of products/services and an analysis of the
product/service life cycle
Analysis of existing strategies, this should
determine relevance from the results of an
internal/external appraisal. This may include gap
analysis which will look at environmental factors
Strategic Issues defined key factors in the
development of a corporate plan which needs to
be addressed by the organization
Develop new/revised strategies revised
analysis of strategic issues may mean the
objectives need to change
Establish critical success factors the
achievement of objectives and strategy
implementation

 Preparation of operational, resource, projects

plans for strategy implementation

Marketing
In many competitor analyses, marketers build detailed
profiles of each competitor in the market, focusing
especially on their relative competitive strengths and
weaknesses using SWOT analysis. Marketing managers
will examine each competitor's cost structure, sources of
profits, resources and competencies, competitive
positioning and product differentiation, degree of vertical
integration, historical responses to industry
developments, and other factors.
Marketing management often finds it necessary to invest
in research to collect the data required to perform
accurate marketing analysis. Accordingly, management
often conducts market research (alternately marketing
research) to obtain this information. Marketers employ a
variety of techniques to conduct market research, but
some of the more common include:
Qualitative marketing research, such as focus
groups
Quantitative marketing research, such as
statistical surveys
Experimental techniques such as test markets
Observational techniques such as ethnographic
(on-site) observation

 Marketing managers may also design and

oversee various environmental scanning and
competitive intelligence processes to help
identify trends and inform the company's
marketing analysis.
Below is an example SWOT analysis of a market position
of a small management consultancy with specialism in
HRM.
Strengths

Weaknesse
s
Reputation
Shortage of
in
consultants
marketplace at operating
level rather
than partner
level
Expertise at Unable to
partner level deal with
in HRM
multiconsultancy disciplinary
assignments
because of
size or lack
of ability

Opportuniti
es
Well
established
position with
a well
defined
market niche
Identified
market for
consultancy
in areas
other than
HRM

Threats
Large
consultancie
s operating
at a minor
level
Other small
consultancie
s looking to
invade the
marketplace

SWOT Analysis in community organization

The SWOT analysis has been utilized in community work
as a tool to identify positive and negative factors within

organizations, communities, and the broader society that

promote or inhibit successful implementation of social
services and social change efforts.[11] It is used as a
preliminary resource, assessing strengths, weaknesses,
opportunities, and threats in a community served by a
nonprofit or community organization. This organizing tool
is best used in collaboration with community workers
and/or community members before developing goals and
objectives for a program design or implementing an
organizing strategy.The SWOT analysis is a part of the
planning for social change process and will not provide a
strategic plan if used by itself. After a SWOT analysis is
completed a social change organization can turn the
SWOT list into a series of recommendations to consider
before developing a strategic plan.

Strengths and Weaknesses: These are the internal

factors within an organization.
Human resources
Finances
Internal advantages/disadvantages of the
Organization
Physical resources
Experiences including what has worked or has not
worked in the past

Opportunities and Threats: These are external

factors stemming from community or societal forces.
Trends (new research)
Societys cultural, political, and economic ideology
Funding sources
Current events
Societal oppression
Although the SWOT analysis was originally designed as
an organizational method for business and industries, it
has been replicated in various community work as a tool
for identifying external and internal support to combat
internal and external opposition. The SWOT analysis is
necessary to provide direction to the next stages of the
change process. It has been utilized by community
organizers and community members to further social
justice in the context of Social Work practice.

Application in community organization

Elements to consider
Elements to consider in a SWOT analysis include
understanding the community that a particular
organization is working with. This can be done via public
forums, listening campaigns, and informational
interviews. Data collection will help inform the community

members and workers when developing the SWOT

analysis. A needs and assets assessment are tooling that
can be used in order to identify the needs and existing
resources of the community. When these assessments are
done and data has been collected, an analysis of the
community can be made which will inform the SWOT
analysis.

Steps for implementation

A SWOT analysis is best developed in a group setting
such as a work or community meeting. A facilitator can
conduct the meeting by first explaining what a SWOT
analysis is as well as identifying the meaning of each
term.
One way of facilitating the development of a SWOT
analysis includes developing an example SWOT with the
larger group then separating each group into smaller
teams to present to the larger group after set amount of
time. This allows for individuals, who may be silenced in a
larger group setting, to contribute. Once the allotted time
is up, the facilitator may record all the factors of each
group onto a large document such as a poster board and
then the large group, as a collective, can go work through
each threat and weaknesses to explore options that may
be used to combat negative forces with the strengths and
opportunities present within the organization and
community. A SWOT meeting allows participants to
creatively brainstorm, identify obstacles and strategize
possibly solutions/way forward to these limitations.

When to use SWOT

The use of a SWOT analysis by a community organization

are as follows: to organize information, provide insight
into barriers that may be present while engaging in social
change processes, and identify strengths available that
can be activated to counteract these barriers.
A SWOT analysis can be used to:
Explore new solutions to problems
Identify barriers that will limit goals/objectives
Decide on direction that will be most effective
Reveal possibilities and limitations for change
To revise plans to best navigate systems,
communities, and organizations
As a brainstorming and recording device as a means
of communication

Benefits
The SWOT analysis in Social Work practice framework is
beneficial because it helps organizations decide whether
or not an objective is obtainable and therefore enables
organizations to set achievable goals, objectives, and
steps to further the social change or community
development effort. It enables organizers to take visions
and produce practical and efficient outcomes in order to
effect long-lasting change, and it helps organizations
gather meaningful information in order to maximize their
potential. Completing a SWOT analysis is a useful process

regarding the consideration of key organizational

priorities, such as gender and cultural diversity, and
fundraising objectives.

Limitations
Critiques include the misuse of the SWOT analysis as a
technique that can be quickly designed without critical
thought leading to a misrepresentation of Strengths,
Weaknesses, Opportunities and Threats within an
organization's internal and external surroundings.
Another limitation includes the development of a SWOT
analysis simply to defend previously decided goals and
objectives. This misuse leads to limitations on
brainstorming possibilities and "real" identification of
barriers. This misusealso places the organizations
interest above the well being of the community. Further, a
SWOT analysis should be developed as a collaborative
with a variety of contributions made by participants
including community members. The design of a SWOT
analysis by one or two community workers is limiting to
the realities of the forces specifically external factors, and
devalues the possible contributions of community
members.

See also
Benchmarking
Strategic planning
Project planning

 Enterprise planning systems

Six Forces Model
VRIO
Porter's Four Corners Model
Programme Evaluation and Review Technique

Introduction of Gold Monetization

Schemes

The Union Cabinet chaired by the Prime Minister, Shri

Narendra Modi, today gave its approval for introduction of
Gold Monetization Schemes (GMS), as announced in the
Union Budget 2015-16.
The objective of introducing the modifications in the
schemes is to make the existing schemes more effective
and to broaden the ambit of the existing schemes from
merely mobilizing gold held by households and
institutions in the country to putting this gold into
productive use. The long-term objective which is sought
through this arrangement is to reduce the countrys
reliance on the import of gold to meet domestic demand.
GMS would benefit the Indian gems and jewellery sector
which is a major contributor to Indias exports. In fiscal
year 2014-15, gems and jewellery constituted 12 per cent

of Indias total exports and the value of gold items alone

was more than $13 billion (provisional figures).
The mobilized gold will also supplement RBIs gold
reserves and will help in reducing the governments
borrowing cost.
The revamped Gold Deposit Scheme (GDS) and the Gold
Metal Loan (GML) Scheme involves changes in the
scheme guidelines only. The risk of gold price changes
will be borne by the Gold Reserve Fund that is being
created. The benefit to the Government is in terms of
reduction in the cost of borrowing, which will be
transferred to the Gold Reserve Fund.
The scheme will help in mobilizing the large amount of
gold lying as an idle asset with households, trusts and
various institutions in India and will provide a fillip to the
gems and jewellery sector. Over the course of time this is
also expected to reduce the countrys dependence on the
import of gold. The new scheme consists of the revamped
GDS and a revamped GML Scheme.

Revamped Gold Deposit Scheme

Collection, Purity Verification and Deposit of Gold
under the revamped GDS:Out of the 331 Assaying and Hallmarking Centres spread
across various parts of the country, those which will meet
criteria as specified by Bureau of Indian Standards (BIS)
will be allowed to act as Collection and Purity Testing 1
Centres for purity of gold for the purpose of this scheme.
The minimum quantity of gold that a customer can bring

is proposed to be set at 30 grains. Gold can be in any

form (bullion or jewellery). The number of these centres is
expected to increase with time.

Gold Savings Account:In the revamped scheme, a Gold Savings Account will be
opened by customers at any time, with KYC norms, as
applicable. This account would be denominated in grams
of gold.

Transfer of Gold to Refiners:Collection and purity testing centres will send the gold to
the refiners. The refiners will keep the gold in their warehouses, unless banks prefer to hold it themselves. For the
services provided by the refiners, they will be paid a fee
by the banks, as decided by them, mutually. The
customer will not be charged.
The banks will enter into a tripartite Legal Agreement
with refiners and Collection and Purity Testing Centres
that are selected by them to be their partners in the
scheme.

Tenure:The deposits under the revamped scheme can be made

for a short-term period of 1-3 years (with a roll out in

multiples of one year); a medium-term period of 5-7 years

and a long-term period, of 12-15 years (as decided from
time to time). Like a fixed deposit, breaking of lock-in
period will be allowed in either of the options and there
would be a penalty on premature redemption (including
part withdrawal).

Interest rate:The amount of interest rate payable for deposits made for
the short-term period would be decided by banks on basis
of prevailing international lease rates, other costs, market
conditions etc. and will be denominated in grams of gold.
For the medium and long-term deposits, the rate of
interest (and fees to be paid to the bank for their
services) will be decided by the government, in
consultation with the RBI from time to time. The interest
rate for the medium and long-term deposits will be
denominated and payable in rupees, based on the value
of gold deposited.

Redemption:For short-term deposits, the customer will have the option

of redemption, for the principal deposit and interest
earned, either in cash (in equivalent rupees of the weight
of deposited gold at the prices prevailing at the time of
redemption) or in gold (of the same weight of gold as
deposited), which will have to be exercised at the time of
making the deposit. In case the customer will like to
change the option, it will be allowed at the banks
discretion. Redemption of fractional quantity (for which a

standard gold bar/coin is not available) would be paid in

cash. For medium and long-term deposits, redemption
will be only in cash, in equivalent rupees of the weight of
the deposited gold at the prices prevailing at the time of
redemption. The interest earned will however be based
on the value of gold at the deposit on the interest rate as
decided.

Utilization:The deposited gold will be utilized in the following

ways:(1). Under medium and long-term deposit:
(i). Auctioning.
(ii). Replenishment of RBIs Gold Reserves.
(iii). Coins.
(iv). Lending to jewellers.
(2). Under short-term deposit:
(i). Coins.
(ii). Lending to jewellers.
(3). Tax Exemption: Tax exemptions, same as those
available under GDS would be made available to
customers, in the revamped GDS, as applicable.
(4). Gold Reserve Fund: The difference between the
current borrowing cost for the Government and the

interest rate paid by the Government under the

medium/long term deposit will be credited to the Gold
Reserve Fund.
(5). Revamped Gold Metal Loan Scheme.
(6). Gold Metal Loan Account: A Gold Metal Loan
Account, denominated in grams of gold, will be opened by
the bank for jewellers. The gold mobilized through the
revamped GDS, under the short-term option, will be
provided to jewellers on loan, on the basis of the terms
and conditions set-out by banks, under the guidance of
RBI.
(7). Delivery of gold to jewellers: When a gold loan is
sanctioned, the jewellers will receive physical delivery of
gold from refiners. The banks will, in turn, make the
requisite entry in the jewellers Gold Loan Account.
Interest received by banks: The interest rate charged on
the GML will be decided by banks, with guidance from the
RBI.
(8). Tenor: The tenor of the GML at present is 180 days.
Given that the minimum lock-in period for gold deposits
will be one year, based on experience gained, this tenor
of GML may be re-examined in future and appropriate
modifications made, if required.

Gold Monetisation Scheme, 2015

Gold Monetization Scheme

Will it Meet with Success?

P Saravanan (psn@iimshillong.in) and M Srikanth

(msk@iimshillong.in) teach at Indian Institute of
Management, Shillong. Suhas M Avabruth
(suhas.fpm13@iimshillong.in) is a doctoral candidate at
IIM Shillong.
The Sovereign Gold Bond Scheme is more likely to attract
the investors attention in a big way as it offers higher
returns than those of the investments in physical gold
and exchange traded funds. Unless the Gold Monetization
Scheme addresses the emotional attachment of investors
with physical gold and shows any significant
improvement over the previous gold deposit scheme it is
likely to fail.

Introduction
Indians love gold. The decision to purchase gold is more
often than not an emotional decision. It is a quintessential
item in most of our social customs and celebrations,
festivals, marriages, anniversaries, religious rituals, etc.
Even governments hold gold as an asset in their reserves
(See Table 1). That is why the demand for gold is inelastic
in the financial markets in spite of rise in its prices (See
Figure 1). According to the World Gold Council, prices of
gold in the past decade rose by 400% in the Indian Rupee
terms but this did not have any effect on its consumption.
In fact, its consumption, in quantity terms, registered an
uptick by more than 70% in the last decade. Demand for
gold in India has been ever increasing mainly due to its

high resale value, demonstration effect, rising affluent

middle class, a hedge against inflation and a safe haven
for black money.

Table 1: Official Gold Reserves of Various

Countries as of 31 March, 2015
Gold Reserves (in
Name of the Country
Tonnes)

Official Gold
Holdings as % of
Total Reserves

The US

8133.50

74

Germany

3383.40

68

Italy

2451.80

67

France

2435.40

65

Russia

1238.30

13

China

1054.10

Switzerland

1040.00

765.20

Japan

Netherlands

612.50

57

India

557.70

Source: World Gold Council Report, 2015

Figure-1: Movement of Gold Price in the Past

Decade
Source: http://goldprice.org/
Demand for gold constitutes of jewellery (56%), followed
by investment purpose (27%) and industrial use (17 %).
India imported 661.4 tonnes of gold worth $33 billion in

201314 and it is the second largest imported item after

crude oil in our import bill. Import of gold (on net basis,
after reckoning export of gems and jewellery), constitutes
nearly 25% of Indias trade deficit in 201314. Hence,
Government of India (GoI) restricted the import of gold
through various measures, such as increasing import duty
on the gold, stipulating additional conditions, such as
80:20 rule for imports, etc.
Though these preventive measures helped in bringing
down our current account deficit to some extent, it
ultimately resulted in unbridled smuggling of gold into the
country through various channels. Illegal import of gold
seized by the Indian customs authorities touched the
highest point of Rs 690 crore during 201314. The
Bharatiya Janata Party (BJP)-led government, which was
elected in May 2014, relaxed some of the restrictions on
import of gold that spiraled the import bill once again.
Demand for gold in India through 201014 is shown in
Figure 2. World Gold Council forecast demand for gold in
India at 950 tonnes in 2015 (Jha 2015).

Figure 2: Demand for Gold in India (in

Tonnes)
Source: World Gold Council Report, 2014
With a view to reducing the reliance on imports to meet
the domestic demand for gold in physical form and
bringing out the idle gold for productive use, GoI
introduced the Gold Monetization Scheme (GMS) and
issue of sovereign gold bonds vide its notification dated
15 September, 2015. Its main objective was to mobilise a
portion of gold from the estimated gold deposits of

20,000 tonnes from the Indian households, temples,

religious trusts, etc. The scheme that was launched in
November 2015 was meant for alternative uses of gold
for optimum utilisation of the yellow metal by the
investors.

GMS and its Mechanics

The proposed GMS is a revamped version of the erstwhile
Gold Deposit Scheme (GDS) and Gold Metal Loan (GML)
which were launched in 1999 and 1998 respectively. As
per the current scheme, the depositor of gold would be
given a certificate specifying the amount and purity of
the deposited gold, once the investor agrees to do so
after fire-assay test (Government of India 2015) done by
Collection and Purity Test Centres (CPTCs, certified by
Bureau of Indian Standards).
Subsequently, the customer could submit this certificate
to any designated branch of a bank to open a gold
savings account in his/her name subject to fulfilling
Know Your Customer (KYC) norms. Accordingly, the
customers account would be credited by the bank by an
amount equivalent to the quantity of standard gold of
995 fineness, based on the prevailing market prices. The
bank would bear the cost of fire-assay test in case of
deposited gold, otherwise it would be borne by the
customer. Minimum amount of gold that could be
deposited under the scheme is placed at 30 gm in order
to encourage collection of gold from small depositors.
GMS can be operated under three categories, namely (a)
short-term deposit (for one to three years with a rollout in

multiples of one year); (b) medium term deposit (for five

to seven years) and (c) long term deposit (for 12 to 15
years).
While the short-term gold deposits are accepted by banks
on their own account, medium and long term gold
deposits are accepted by banks on behalf of the GoI.
Interest and principal on the short-term deposits would be
denominated in volume terms, that is, gold in grams.
Rate of interest on these deposits would be decided by
the banks based on the prevailing market conditions,
international lease rates, etc. In case of the medium and
long term deposits, interest would be denominated in the
Indian rupees and would be decided by the GoI in
consultation with the Reserve Bank of India (RBI). Though
interest rates on these deposits have not been made
public, industry sources indicated that it may range from
2%3% per annum (PTI 2015b).

Use of Deposited Gold

The gold mobilised under short term deposits can be sold
or lent by the banks to Metals & Minerals Trading
Corporation (MMTC) for minting gold coins or to other
banks or to jewelers. However, the gold mobilised under
the medium and long term deposits would be auctioned
by MMTC and the sale proceeds would be credited to the
GoIs account. The gold deposits mobilised by the banks
under the scheme would be reckoned for maintenance of
statutory liquidity ratio (SLR) (Reserve Bank of India
2015).

Merits and Limitations

The scheme has certain advantages viz, GoI proposes to
make a provision for Gold Reserve Fund to address
price and currency risks in case of medium and long term
deposits. In other words, if the price of the gold increases
at the time of redemption of the deposits, the
government would bear the risk and the investor would
get the benefit to that extent. Commercial banks,
however, would provide safety on the short term
deposits. As such, investors would not have any safety
concerns in this regard. The deposits can be withdrawn
prematurely subject to minimum lock-in period and
payment of penalty. Therefore, the scheme offers liquidity
on the gold deposits, of all tenures.
The scheme offers two kinds of returnfixed interest
income on the gold deposit and capital gains, if any,
through appreciation in gold price. Hence, the scheme is
more attractive, in terms of returns, when compared with
the investment in physical gold. As the government has
stipulated minimum investment of gold at 30 gm (as
against 200 gm in the earlier GDS of 1999) to lure
domestic households, it would encourage investors to
maintain gold in the form of financial asset rather than a
physical asset.
Besides, the gold depositor is done away with payment
of rent for storing physical gold as in the case of keeping
physical gold in the banks lockers. However, at the time
of redemption of gold deposit, the depositor may not get
the same jewellery or ornaments, which she was holding
earlier. The previous GDS of 1999 provided tax incentives,

such as exemption from Income Tax and Wealth Tax. As

per the notification issued by the GoI, the current scheme
would also offer the same kind of tax benefits to the
investors.
However, on the flip side, the scheme has features which
may work against it. The jewellery held by the households
in India is occasionally used; even if it is so, it is treated
as a matter of status symbol and to showcase the wealth
of a particular individual. One can never be sure how
people will behave when it comes to physical gold.
Introduction of gold futures on the Indian Commodity
Exchanges has not deterred appetite for physical gold
holdings.
Therefore, melting the jewellery, as proposed under the
current scheme, will defeat the very purpose of the
scheme. As gold is used as a store of wealth, many
people, especially from the rural/semi-urban areas, who
buy gold on various occasions or who wish to park their
liquid cash in the scheme might not have proper record
of their income and Permanent Account Number (PAN),
etc. In fact, most of the transactions in gold take place on
cash basis and without any documentation.
However, Arun Jaitley, in his recent speech on 9
September 2015, categorically mentioned that the GMS is
not black money immunity scheme (PTI 2015a).
Despite the proposed tax exemptions, very few investors
are interested to disclose their income to tax authorities
by depositing gold under the scheme. Hence, the scheme
may mobilise gold only to a limited extent. While the
previous scheme (1999) offered relatively low interest
rate of 0.75% per annum on the gold deposits, which was

one of the reasons for its failure, the present scheme

appears to be a better version than the earlier one. As
the banks are free to decide on interest rates with respect
to short term gold deposits, they may not be willing to
offer higher interest rates on the deposits, in the absence
of any incentives/regulations. Lower interest rates will not
attract the investors, in any case. Hence, to attract more
number of investors under the scheme, the return
(expected capital gain plus rate of interest) offered should
be at least equal to or higher than that of the prevailing
inflation rate (Reserve Bank of India 2013). One important
point to note is that appreciation in value of gold may not
happen in all market conditions.
In view of the above, only the gold that is held as
investment might flow into the scheme. However, the
quantity of gold held as investment is much lower than
that of the gold held in the form of jewellery and other
ornaments. At present, the number of CPTCs
(Government of India 2015) located in India are only 331.
Further, distribution of these centres is heavily skewed in
favour of southern part of India (142, comprising 43 %),
out of which Tamil Nadu has the highest number (57)
followed by Kerala (38). Limited number of CPTCs are
existing in the northern and western parts of India. Except
for one centre in Assam, there is no other centre located
in the North East. The skewed distribution of CPTCs will
distort the nationwide implementation of the scheme and
make the scheme confined only to certain pockets of the
country.

PostscriptAfter the Launch

Narendra Modi formally launched Swarna Bharatthe

formal name for the GMS on 5 November 2015.
Under this scheme, depositors have the option to take
cash or gold on maturity, but the preference should be
declared at the time of deposit itself. Once the option is
declared by the depositors, it is irrevocable. In case of
premature redemption, cash or gold will be given to the
depositor, at the discretion of the bank.
In case of short-term deposits under the scheme, a
leading Indian public sector bank indicated that interest
rate at rate of 0.50% for one year, 0.55% for two years
and 0.60% for three years. While the government is
offering 2.25% on medium term deposits, it is offering
2.50% on long term deposits.
One reason for lower interest rates offered by banks
under the GMS is that the international gold lease rates
(the rates at which banks lend gold to jewellers) are
hovered around 3%. Besides, the banks have to bear
costs, such as storage, assaying and transportation costs.
The short-term deposits under the scheme have
minimum lock-in period, say 12 months as per the
notification of some banks in India. RBI allows Loan-ToValue (LTV) ratio of 70% in respect of gold deposits.
The scheme is attractive especially for the taxpayers as
interest income from this deposit will be exempt from tax.
Further, the scheme is exempted from the purview of
wealth tax and capital gain tax (on appreciation in the
price of gold).

Conclusion

Gold monetisation and gold bond schemes are

progressive measures introduced by the government for
optimum utilisation of gold by the investors and also
towards reducing Indias current account deficit. While
the GMS is targeted at harnessing the gold lying idle with
the individual households, temples, religious trusts, etc,
the GBS is designed to address the investment demand in
non-physical gold. GMS might not be very successful
since it does not address emotional attachment of
investors with physical gold and does not have any
significant improvement over the previous gold deposit
scheme. Besides, appreciation in value of gold (capital
gains) may not happen always. However, GBS is more
likely to attract the investors attention in a big way as it
offers higher returns than those of the investments in
physical gold and the exchange-traded funds. Only time
will tell whether the tax and interest rate incentives
offered by the government will determine success of
these schemes.

Notes
World Gold Council, 2015, available at
http://www.gold.org/
[i]

World Gold Council, 2015, available at

http://www.gold.org/
[ii]

80:20 rule on gold imports was introduced in August

2013. The rule mandates the traders to export minimum
20% of all their gold imports.
[iii]