[dropcap]T[/dropcap]he Narendra Modi Government appears to have made do with lazily tweaking the old and failed gold monetisation scheme (GMS) from the Congress era, instead of coming up with something truly innovative, which would likely work.
It thinks it is enough to offer an increased interest of 2.5% on physical gold deposited for tenures of up to 15 years because it is more than the 1% that was previously offered. And since the redemptions will be in terms of the expectedly enhanced values of gold at the time!
The government’s self-regarding, if investor-unfriendly, idea is to reduce or halt the importation of nearly 1,000 tonnes of gold every year, by tapping into the gold being hoarded ‘uselessly’ by citizens and temples. So far in this fiscal, India has already imported 563 tonnes of gold, the largest amount in the world, surpassing China’s 548 tonnes.
It is sadly apparent from this GMS that the Government of India has a talent for announcing tenders and schemes doomed to failure, crafted as they are by hidebound bureaucrats led by little new political vision.
The sarkari babus, learned and qualified as they are, routinely think in a very restricted manner based on precedent, and the most innovation they can stretch to is incremental. The political leadership has also decided not to break free and announce a dynamic scheme either.
What sense otherwise does it make to announce a GMS that appears to be in cahoots with, and tied to the apron strings of, the central board of direct taxes (CBDT)?
The GMS scheme, just announced, asks for permanent account numbers (PAN) allocated by the income tax department, to be posted alongside if the gold value exceeds a paltry Rs 50,000.
How does it ignore the fact that there are many relatively poor people, especially from rural areas, with tax free and largely cash-fed incomes, who have no PAN number, but who do possess at least Rs 50,000 worth of gold?
Like the laughable wealth tax limits that were first raised before the failed tax was abolished altogether, it would make sense to ask for the PAN/Aadhar card number/passport number, etc. only for identification purposes; in order to confirm the nationality and address of the depositor. But for this to work, simultaneously, it needs to be made explicit that there would be no tax query whatsoever on any value of gold deposited by Indian entities or individuals under this GMS, and this without any upper limit.
The purpose of tapping this gold, as the prime minister announced, is to help in nation building, reduce deficits, finance infrastructure, reduce importation costs etc. So why obfuscate this laudable set of objectives with sly attempts at ensnaring gold depositors, many of them non-working women, in an income tax net?
Otherwise, almost the entire estimated hoard of 20,000 tonnes and growing will find itself unable to respond to the government’s inadequate scheme even in small measure. Many bank officials, who will be part of the collection machinery, state privately and from past experience that the scheme will be lucky to attract an aggregate of 20 tonnes of gold. This, when the government ostensibly wants to tap a resource worth at least $ 800 billion, nestling in private hands and temple vaults! So why ask for PAN from people who deposit a mere $750 odd worth, or more, of the precious substance?
Besides, a person in need of money, or wanting to unlock and invest his gold value, is better off selling his gold at any opportune moment, and investing the proceeds. He would have a choice of bank fixed deposits, debt mutual funds, government gilt funds, company deposits, and so forth, and for up to handsome double-digit returns per annum. If he is investing more than Rs 49,000, say, he can happily split the excess amount in the names all his family members without coming to the notice of the tax authorities. He would also have total control over the contours and tenure of his investment, the duration he wants to stay invested, particularly if he chooses open-ended funds and has the ability to effect redemption on demand, should the need arise.
Also, the GMS scheme proposes to melt down jewellery deposited at government-approved mints, and many expect a loss of up to 30% of the weight certified due to purity issues and percentage of non-hallmarked gold quite often used in jewellery and ornaments.
Indians keep gold as a security, for traditional ceremonies, and to pass on to children at marriages. Indian temples have tonnes of gold and precious jewels, deposited quite often anonymously by ordinary devotees, though several have been endowed by kings, princes, noblemen etc in times past as well as today’s rich men — industrialists, criminals, politicians, movie stars.
Perhaps the government hopes to lay its hands on a proportion of this ‘institutional’ gold, no questions asked, under cover of the religious sentiments involved, via temple-governing bodies in their sway. If this is the case, they can, of course, meet their objectives substantially, and still need not bother with stirring any hornet’s nest of sanctimonious opposition — an opposition that would inevitably come by if source of funds and tax implications are ignored. But this could well be the political calculation to make sense of an otherwise unexciting and vanilla offering.
Otherwise, it must be understood that the bulk of the 20,000 tonnes of gold estimated to be tucked away in personal safes and temples has most likely been bought in unaccounted for, non-tax-paid, cash — since independence.
The gold hoarded is also partially smuggled into the country. This process is ongoing to this day, in addition to the official imports, as seizures from time to time reveal.
Another major part of it is inherited, within families, and from old times when the Mughals, the Princely States and British Raj got all the tax money they wanted from land revenues and ad hoc impositions. And there was no concept of income tax, or black and white money either. Another large stash of princely gold and jewellery is rumoured to be secreted in bank vaults all over Europe and America. And, of course, a good deal of it came from looting and pillaging in conquered territories, usury, tithes, and tributes from vassals. These events were all par for the course in previous centuries. So PAN numbers for all this does seem a little silly.
In addition to the GMS, the government is issuing gold coins of 5/10/20 g weights for the first time. It has also announced a Sovereign Gold Bonds Scheme wherein investors can buy gold-denominated paper bonds representing different weights of physical gold carrying interest rates of up to 2.75% .
The bottom line — the government will succeed in these schemes if it can inveigle rich temples to invest in them and deposit at least some of their physical gold. The public at large may however show wisdom and choose to stay away from these tepid and flawed schemes.
The featured image is credited to The New Indian Express