FAQs on Gold Reforms in the Demonetization Drive

Introduction

The recent demonetization drive saw large investments in Gold and accordingly reforms were made on holding gold by individuals. Some of the FAQ on gold reforms are as follows.

What are the restrictions made on maintaining gold?

• A married woman can keep 500 grams of gold
• A male can keep 100 grams of gold
• An unmarried female can keep 250 grams of gold
• All must pass litmus test or heirloom test conducted by Income Tax department 

What is litmus or heirloom test?

• It is a measure to prove that the jewellery was handed over from the past generation

Why the gold reforms are announced now?

• As soon as the demonetization was announced, hoarders of black money invested in gold buying a whopping 70 metric tonnes of gold overnight
• Black money is hoarded in the form of gold to the tune of 20000 metric tonnes 
• Gold forms the primary source of black money followed by real estate and liquid cash
• The main aim of the gold reforms announced now is to recover the black money
• The effectiveness of the reforms has to be seen after the results are produced

Why gold is so sensitive?

• Hoarders maintain gold in biscuit or other smuggled means
• In India, Gold is a customary aspect in marriages with parents doing stri dhan to their daughters
• Gold reforms become very sensitive as it directly impacts women on a mass scale
• Gold has been a part of the Indian society from the historical ages
• Gold is always a status symbol among Indians
• People continue to buy gold on festive occasions and during marriages boosting the demand of gold
• India ranks top among the gold importers in the world

How can Gold Bond Schemes help in the current situation?

• GOI introduced the gold bond schemes to bring in the 20000 metric tonnes of idle yellow metal present in the Indian households
• These are government securities and is the perfect substitute for keeping physical gold in bond format to be redeemed for cash on maturity
• RBI issues the gold bonds on the market value of gold
• Individual can invest from 2 grams to 500 grams annually in gold bonds
• Tax exemption is available

Why Gold reforms and schemes have been a failure till now?

• Earlier the gold schemes of both 1999 and 2005 were a total failure
• Pitfall is the low-interest rate given on gold bonds
• Women will be hesitant to give away their idle jewellery for cash in the gold bonds
• Black money is hoarded mainly as gold biscuits and other forms
• The gold reforms target on jewellery keeping the gold biscuits and other gold forms out of the bracket 
• This is the main reason for the failure of the gold reforms
• The current reforms may see a push in the gold bond investments

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