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Why India should launch a gold amnesty scheme to shore up national reserves

Instead of fighting the citizens' love for gold, the government could integrate it into the formal economy through a strategic buyback.

India’s governments have always fretted about the average citizen’s love for gold, a love that has to be paid for in dollars. They have done everything and more to douse this costly passion, but they have always failed.custom

In the past, customs duties on gold were raised to extortionate levels to prevent such imports, but they only drove the imports underground. A Kotak Securities report estimates that private gold holdings may be valued at over $ 5 trillion – which is a quarter more than the country’s GDP of around $4 trillion.

In the Modi years, another idea was devised to wean Indians away from the lure of physical gold: the sovereign gold bonds scheme (SGBs). People were asked to invest in these bonds and were guaranteed zero capital gains tax on redemptions at the then prevailing market prices, and also given an annual interest rate of 2.5 percent (earlier 2.75 percent when the scheme was first announced). That’s sone pe suhaga. The scheme was wildly successful – but the government is now sitting on massive liabilities as gold prices have gone through the roof.

As of two months ago, the government’s total liabilities on SGBs – which will have to be steadily repaid all the way till 2032 –........

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