Gold Monetisation Scheme
The Gold Monetisation Scheme (GMS), launched by the Government of India in November 2015, enables individuals, trusts, and institutions to deposit idle physical gold with designated banks, earn interest on the gold deposited, and contribute to reducing India's gold import dependency.
India holds an estimated 25,000–30,000 tonnes of private gold — one of the largest reserves of privately held gold globally — stored primarily in households and religious institutions. This gold yields no return and contributes to India's chronic current account pressure by requiring recurring gold imports to meet domestic demand. The Gold Monetisation Scheme was designed to mobilise this idle gold into the productive economy by offering interest-bearing deposits, reducing the imputed dead-weight loss of non-earning gold holdings.
The GMS offers three deposit variants. The Short Term Bank Deposit (STBD) has a 1–3 year tenure with interest payable by individual banks (typically 0.5–1 percent per annum on gold equivalent), and the depositor receives gold or cash equivalent at maturity based on a predetermined gold price. The Medium Term Government Deposit (MTGD) has a 5–7 year tenure with the government guaranteeing principal and interest, with interest historically set at 2.25 percent per annum; redemption is in cash equivalent of gold value at current prices. The Long Term Government Deposit (LTGD) has an 8–12 year tenure at 2.50 percent per annum.
The deposited gold is evaluated at Collection and Purity Testing Centres (CPTCs) operated by state-run and Bureau of Indian Standards-certified refineries. After purity testing, the gold is credited to the depositor's gold savings account. The mobilised gold is then used by banks for lending to jewellers and bullion traders or auctioned by the RBI, reducing the need for fresh gold imports.
Tax treatment of GMS deposits provides significant incentives: interest earned on GMS deposits is exempt from income tax, wealth tax, and capital gains tax, regardless of the tenure of the deposit or the appreciation in gold value over the holding period. This makes GMS structurally attractive compared to physical gold held in vaults (which carries storage cost, theft risk, and wealth tax implications).
Despite its fiscal incentives, GMS uptake remained limited in its initial years — deposits of approximately 20–25 tonnes had been mobilised by 2022, compared to the government's aspiration of mobilising thousands of tonnes. Barriers included: reluctance of depositors to reveal the quantum or purity of their gold holdings (regulatory and social concerns); lack of CPTC infrastructure in smaller cities; complex documentation; and the deeply ingrained cultural preference for physical gold possession in India.
For the banking sector, GMS gold can be deployed against loans to jewellery manufacturers and bullion traders (thus substituting for imported gold funding) and contributes to reducing the overall current account deficit. For fixed income and commodity investors, GMS represents a regulated, government-backed gold-linked investment with unique tax advantages.