Question 3 from UPSC CSE 2016 - Economy

Question

What is/are the purpose/purposes of Government's 'Sovereign Gold Bond Scheme' and 'Gold Monetization Scheme'?
1. To bring the idle gold lying with Indian households into the economy.
2. To promote FDI in the gold and jewellery sector.
3. To reduce India's dependence on gold imports.
Select the correct answer using the code given below.

IASCODEX · Accepted Answer

Correct Option: C. 1 and 3 only

Strategy: The strategy is to identify the core objectives of the Sovereign Gold Bond and Gold Monetization Schemes—mobilizing idle gold and reducing gold imports—and then evaluate each statement against these objectives. Statements that align with these core purposes are selected, while those addressing unrelated objectives, such as FDI promotion, are discarded.

Key Info: The Government of India launched the Sovereign Gold Bond Scheme and Gold Monetization Scheme in November 2015 as part of its strategy to reduce India's reliance on physical gold imports and mobilize domestic gold.

- **Sovereign Gold Bond (SGB) Scheme:**
    - **Purpose:** To offer an alternative to holding physical gold. Investors buy bonds denominated in grams of gold and receive interest on their investment. This reduces the demand for physical gold and associated imports.
    - **Features:** Issued by the RBI on behalf of the Government of India, bonds are substitutes for holding physical gold, earn interest, and offer capital appreciation linked to gold prices. Investors avoid storage costs and purity issues.

- **Gold Monetization Scheme (GMS):**
    - **Purpose:** To mobilize the large amount of idle gold lying with households and institutions in the country and put it to productive use. Individuals and institutions can deposit their physical gold (jewellery, coins, bars) with banks to earn interest.
    - **Features:** Gold is deposited in a Gold Savings Account, earning interest based on the quantity of gold. The principal and interest are paid in gold or equivalent rupees at maturity.

- **Common Objectives of SGB and GMS:**
    - To bring the idle gold lying with Indian households and institutions into the economy by providing attractive, interest-bearing alternatives to physical gold. This transforms unproductive assets into productive ones.
    - To reduce India's dependence on gold imports by decreasing the domestic demand for physical gold, thereby conserving foreign exchange. India is one of the largest importers of gold globally.

IASCODEX · Answer

Option A: 1 only

IASCODEX · Answer

Option B: 2 and 3 only

IASCODEX · Answer

Option D: 1, 2, and 3