Gold Monetisation Scheme Discontinued, Short-Term Deposits May Continue

India today announced the discontinuation of the Gold Monetisation Scheme (GMS), effective March 26, 2025, signaling a significant shift in its gold policy.

The Ministry of Finance cited the scheme’s underwhelming performance and evolving market conditions as reasons for terminating the Medium-Term Government Deposit (5-7 years) and Long-Term Government Deposit (12-15 years) components. However, banks will retain the flexibility to offer Short-Term Bank Deposits (STBD) of 1-3 years, based on their commercial viability, with detailed Reserve Bank of India (RBI) guidelines to follow.

Launched in September 2015, the GMS aimed to mobilize idle gold held by households and institutions, reducing India’s reliance on gold imports while putting the metal to productive use. Over its decade-long run, it mobilized 31,164 kilograms of gold from 5,693 depositors by November 2024, with short-term deposits accounting for 7,509 kg, medium-term 9,728 kg, and long-term 13,926 kg.

Despite these figures, the scheme faced challenges, including low public uptake due to emotional attachment to physical gold and logistical complexities like purity testing.

The decision to discontinue the medium and long-term components reflects a pragmatic response to rising gold prices—up 41.5% to Rs 90,450 per 10 grams since January 2024—and shifting economic priorities.

Existing deposits under these categories will continue until redemption, ensuring depositors are unaffected mid-term. Meanwhile, the continuation of STBDs offers banks an opportunity to adapt offerings to market demand, potentially sustaining some benefits of the original scheme.

This move marks a retreat from an ambitious vision, leaving stakeholders to ponder its implications for India’s gold economy. As the government refocuses, the spotlight shifts to whether banks can leverage short-term deposits to keep the spirit of gold monetisation alive.