By CA Surekha Ahuja
India does not have a gold shortage. It has a gold mobilisation problem. The next Gold Monetisation Scheme should solve the owner's problem first — and the economy's problem as a result.
India's households are estimated to hold around 34,000 tonnes of gold. Yet only a fraction has entered formal monetisation channels. The Medium and Long Term Government Deposit components of the Gold Monetisation Scheme were discontinued from 26 March 2025, while banks may continue to offer Short Term Bank Deposits at their discretion.
That experience offers a simple policy lesson.
The next scheme should not begin by asking:
How much gold can the Government collect?
It should begin by asking:
Why would a household, temple, trust or institution willingly give up physical possession of its gold?
That is the real design question for GMS 2.0.
The problem is not gold. It is trust.
Gold is not an ordinary financial asset.
A family may hold jewellery inherited over generations. A temple may hold ornaments with religious significance as well as monetary value. A trust may hold gold whose ownership, accounting and governance cannot simply be treated like an individual's investment.
Therefore, asking people to melt, assay and surrender gold in return for a conventional financial return may not be enough.
A successful GMS 2.0 should make the owner confident that:
My gold is safe.
My ownership is protected.
Its value is transparent.
I can redeem it when genuinely required.
I am not giving away the benefit of future gold appreciation.
And I am not creating an unnecessary tax or documentation problem.
Once these concerns are addressed, mobilisation becomes much more realistic.
What should GMS 2.0 actually offer?
| Design issue | Recommended approach | Why it matters |
|---|---|---|
| Gold linked return | Include | The depositor should retain meaningful economic participation in gold |
| Easy redemption | Include | Liquidity is central to the attractiveness of gold |
| Compulsory melting | Avoid as the only route | Jewellery and institutional ornaments can have value beyond metal content |
| Verified custody | Include | Owners must be comfortable surrendering physical possession |
| Digital gold registry | Include | Ownership, custody, pledge and redemption need an auditable record |
| Temple and institutional window | Include separately | Legal ownership, authority, accounting and governance are different |
| Jeweller network | Use with regulation | Existing networks provide reach and convenience |
| Insurance | Mandatory | Custody risk must not remain with the depositor |
| Independent audit | Mandatory | Physical gold and digital records must reconcile |
| Tax safe harbour | Narrow and time-bound | Documentation gaps should not prevent genuine household participation |
| Large HNI holdings | Enhanced scrutiny | Larger holdings require stronger source, ownership and governance checks |
| Gold backed lending | Phase 2 | Lending should follow reliable ownership and valuation |
| Blockchain or similar technology | Use only if useful | Legal enforceability and auditability matter more than technology branding |
The biggest change: give the owner a choice
GMS 2.0 should not force every owner into one product.
It could have three distinct routes.
1. Gold Deposit
The owner deposits eligible gold and receives a gold-linked financial claim with clearly defined return and redemption rights.
This is the mass-market route.
2. Secure Gold Custody
The owner retains economic ownership while the physical gold is placed in professionally controlled and insured custody.
This could be particularly useful for:
- inherited jewellery
- high-value family holdings
- temple ornaments
- institutional gold
- bullion
The objective is important:
Monetise the financial utility of gold without unnecessarily destroying the form in which the owner values it.
3. Gold-Backed Financial Asset
Once ownership, custody and valuation systems are reliable, the verified gold balance can support regulated lending and other financial products.
This is where the larger economic opportunity lies.
But it should come after the trust infrastructure is established.
Temples need a separate lane
The institutional opportunity should not be reduced to:
“Temples should deposit their gold.”
The better proposition is:
“Give temples and eligible institutions a safer way to protect, account for and earn from gold that can lawfully be monetised.”
Before institutional gold enters the system, GMS 2.0 should clearly establish:
- who legally owns the gold
- who is authorised to deposit it
- who can redeem it
- how it is independently valued
- how income is accounted for
- who approves the transaction
- how changes in trustees or management affect the deposit
- how the asset remains identified in institutional records
- how religious and legal restrictions are protected
This could create an important double benefit.
Less gold physically stored on vulnerable premises, and a potential financial return on otherwise idle assets.
But the legal character and ownership of institutional gold must remain protected.
Security should be the foundation
When physical gold leaves the owner's premises, custody becomes the heart of the scheme.
A credible GMS 2.0 should therefore provide:
Digital ownership records
Every deposit should have a secure record of quantity, purity, owner, custody status, pledge status and redemption rights.
Multi-party controls
No single custodian or intermediary should be able to move or encumber gold unilaterally.
Mandatory insurance
Responsibility for loss, theft or custody failure should be clearly allocated.
Independent audits
Physical stocks and digital records should be periodically and independently reconciled, with surprise verification where appropriate.
Clear liability
The depositor should know in advance who pays if something goes wrong.
Technology can support this architecture.
But technology is not the architecture.
A blockchain ledger cannot compensate for weak ownership rules, poor custody or uncertain redemption.
Do not make melting the price of admission
For bullion, conventional assaying and refining may be straightforward.
For family jewellery and institutional ornaments, it is different.
A better system could have two tracks.
Track A — Assay and refine
Eligible gold is standardised and credited to the depositor.
Track B — Verified custody
Eligible gold remains identifiable, securely stored and digitally recorded, subject to prescribed valuation, inspection and custody safeguards.
Track B is more complex.
But it addresses a fundamental psychological barrier:
People may be willing to give up possession of their gold without being willing to destroy its identity.
Tax certainty can unlock household gold
Another major barrier is documentation.
Gold accumulated over generations may not always have invoices or a complete purchase trail.
The answer should not be a permanent blanket amnesty.
A better approach would be a narrow, clearly defined and time-bound safe harbour for genuine household holdings, subject to prescribed conditions.
For large HNI, business and institutional holdings, the approach should be different:
more disclosure, stronger beneficial ownership verification, better valuation evidence and stronger governance documentation.
The objective should be formalisation — not a back door for unexplained assets.
Gold-linked returns could change the proposition
The owner needs an economic reason to participate.
If gold prices rise substantially, a conventional fixed rupee return may make the depositor feel that the principal economic attraction of gold has been surrendered.
GMS 2.0 should therefore examine whether a transparent gold-linked return mechanism can be structured within the applicable monetary, banking, tax and securities framework.
The precise product can be debated.
The principle should not be ignored:
The depositor should not feel that monetisation means giving away gold's future economic value.
That could fundamentally change the psychology of the scheme.
Lending should come second
Gold-backed credit offers a potentially powerful economic channel.
But GMS 2.0 should resist the temptation to begin with lending.
The sequence should be:
Gold → Verified Ownership → Secure Custody → Transparent Valuation → Digital Registry → Redemption → Lending
Not:
Gold → Loan
Once the infrastructure is proven, a regulated lending layer could address:
- pledge creation
- valuation
- loan to value
- margin requirements
- default
- notice
- auction
- recovery
- surplus return to the owner
- release of pledge
This sequencing would allow the Government to build the financial ecosystem on reliable collateral rather than unresolved custody problems.
Jewellers can provide the last mile
India already has a vast gold ecosystem.
GMS 2.0 should use that infrastructure rather than recreate it.
Authorised jewellers, refiners, assayers and other regulated participants could potentially become collection and service points, while ownership records, custody and settlement remain subject to strong regulatory controls.
The objective should be simple:
Make depositing gold almost as convenient as holding it.
Convenience will matter as much as return.
What does the economy gain?
A successful GMS 2.0 can be much more than a gold deposit scheme.
Lower dependence on fresh imports
Mobilising domestic gold can potentially reduce the need to meet every incremental demand through fresh imports, although the actual macroeconomic effect would depend on participation, product design and how mobilised gold is used.
Productive use of household wealth
Physical wealth that currently sits idle can become part of the formal financial system.
Safer institutional assets
Temples and eligible institutions could potentially reduce physical-security exposure while retaining lawful economic ownership.
Deeper financial markets
A reliable gold registry and custody system could support new regulated products.
More formal credit
Once ownership and valuation are reliable, gold can become higher-quality collateral for regulated lending.
Greater formalisation
A carefully designed disclosure and documentation framework can bring genuine household gold into the formal economy without creating a permanent amnesty.
The Government should measure more than tonnes
The success of GMS 2.0 should not be judged simply by the quantity of gold collected.
A scheme could mobilise thousands of tonnes and still be economically inefficient if custody, refining, insurance, administration and redemption costs are excessive.
The Government should instead monitor:
| Measure | What it tells policymakers |
|---|---|
| Gold mobilised | Scale of participation |
| Active depositors | Household and institutional adoption |
| Repeat deposits | Whether trust is sustained |
| Redemption time | Actual liquidity |
| Cost per gram mobilised | Economic efficiency |
| Custody losses and claims | Quality of infrastructure |
| Imports affected | Actual rather than assumed macro impact |
| Credit generated | Financial productivity |
| Institutional participation | Success beyond households |
| Tax compliance | Quality of formalisation |
| Customer satisfaction | Whether the product works for the owner |
The GMS 2.0 decision test
Before introducing any feature, policymakers should ask:
| Owner's question | Scheme's answer should be |
|---|---|
| Is my gold safe? | Independent custody, insurance and audit |
| Is it still legally mine? | Clear ownership and enforceable rights |
| What if gold prices rise? | Transparent participation in gold economics |
| Can I get it back? | Simple and predictable redemption |
| Will my jewellery be destroyed? | More than one eligible deposit route |
| What about old family gold? | Clear and limited tax and documentation safe harbour |
| What about temple gold? | Separate institutional governance framework |
| Who controls the record? | Central, secure and auditable registry |
| What if something goes wrong? | Clearly allocated liability and compensation |
| Can my gold support credit? | Regulated lending after the core infrastructure works |
Casahuja Perspective
GMS 2.0 should not be designed as a Government scheme asking Indians to part with their gold. It should be designed as a financial system that makes Indians want to participate.
India's gold is already owned.
The challenge is to make ownership, security, liquidity and productivity work together.
For households:
Keep the economic value. Reduce the storage risk. Gain liquidity.
For temples and institutions:
Protect the asset. Preserve lawful ownership. Reduce physical-security exposure. Earn where legally permissible.
For the financial system:
Create verified collateral and a trusted gold ecosystem.
For the economy:
Turn a portion of dormant physical wealth into productive financial capital.
For Government:
Build the rails, trust and safeguards — rather than merely setting a target for tonnes of gold.
The first question should no longer be:
“Why won't Indians deposit their gold?”
The better question is:
“What would make an Indian willingly deposit gold today?”
If the answer is better returns, safe custody, easy redemption, tax certainty, preserved ownership and genuine convenience, GMS 2.0 has the ingredients for scale.
If the proposition remains simply “deposit your gold because the economy needs it,” mobilisation may remain limited.
India does not need to persuade its people to stop loving gold.
It needs to make their gold safer, more liquid and more productive — without making them feel that they have lost control of it.
That is the opportunity for Gold Monetisation Scheme 2.0
