Why Hindus are not buying Modi's gold schemes

Prime Minister Narendra Modi launched three gold related schemes - Gold Monetisation Scheme (GMS), Sovereign Gold Bond Scheme and India Gold Coins - barely a week before the festival of lights Diwali and Dhanteras (when Hindus buy precious metals) on November 5. He had said on the occasion that the nation has 20,000 tonnes of gold and that they should be put to productive use. He was of the view that gold can be a great tool for women empowerment and that they would be the biggest beneficiaries of the new schemes.

However, far from Modi's expectations, GMS has turned out to be a damp squib. According to a report in The Indian Express on November 20, only 400 grams of the precious and coveted yellow metal have been deposited under the scheme so far. The report quoted Gem and Jewellery Export Promotion Council’s (GJEPC) northern region chairman Anil Sankhwal, who was among the industry executives meeting finance ministry officials in the national capital, as stating that finance ministry sources said the government would ensure that the number of refineries would be increased from four to 20 and testing centres from 29 to 55 by December.

Unfortunately, the government has apparently failed to assess the real reasons behind the poor response to GMS. Under the present circumstances, the government's initiative will not bear fruit because of these two reasons:

1. Sentimental value

While launching the scheme, the government did not take into account the sentimental attachment which the people have with gold. When the PM said that earlier, people had to pay to the bank for keeping gold ornaments in lockers but now they would earn by depositing them, one thought that he or she would get benefit of the scheme by just depositing their ornaments with the banks. But they got a rude shock on being told that their gold ornaments would be melted to conduct fire assay test. As part of the testing process, before melting the ornaments, they are cleaned of dirt, studs and the likes. The studs are handed over to the customers and right in front of them, the jewellery is melted through a fire assay and its purity is ascertained.

The scheme has not been successful because most of the customers are not ready to see their ornaments, with which they have invaluable sentimental attachment, being melted down. Many women are presented, during their marriage, gold ornaments which have been come down through several generations. More than the value of the gold, people are attached to them emotionally. They would never like these ornaments to be melted down. They may prefer to spend money for their safe-keep in bank lockers rather than having them melted down. Even for the people who desperately need money, they go the extent of mortgaging the gold ornaments to avail of loans. They pay back the mortgage amount to get back their original ornaments. But the idea of getting back a gold bar, albeit a bit heavier or more valuable, is generally not acceptable to Indian psyche. The customers may hand over only those gold ornaments to the government with which they do not have sentimental attachment.

2. Purity of gold

Under GMS, the customers are informed about the purity of gold after the fire assay test. Even though the collection centres melt the gold right in front of the customers who see the process through galleries, they feel cheated when they are informed that their gold is not 22 carat pure. Most people still do not buy hallmarked gold but they do believe that it is 100 per cent pure. When they come face-to-face with the truth, instead of blaming the goldsmith or jewellery shops from where they had bought the gold, they suspect the collection centres of foul play.

Until and unless the government addresses these two issues, the scheme may not become a success.