Context: 

The Union Finance Ministry has announced the discontinuation of the medium- and long-term government deposit (MLTGD) components of the Gold Monetisation Scheme (GMS) effective from March 26.

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This decision comes after a comprehensive review of the scheme’s performance and evolving market conditions.

However, Short-Term Bank Deposits (STBD) offered by banks under GMS will continue at the discretion of individual banks, depending on their commercial viability.

Existing MLTGD deposits will remain in effect until their maturity and redemption, as per the current guidelines.

As of November 2024, 31,164 kg of gold have been mobilized under the following terms:

• 7,509 kg: Short-Term Gold Deposits
• 9,728 kg: Medium-Term Gold Deposits
• 13,926 kg: Long-Term Gold Deposits

A total of 5,693 depositors participated in the Gold Monetisation Scheme.

GMS is the second gold scheme to face closure by the government in recent months amid a sharp surge in gold prices. The Centre had earlier discontinued the fresh issuance of sovereign gold bonds. 

About the Gold Monetisation Scheme (GMS) 

It was launched in November 2015.

Objectives:

• To make idle gold productive by integrating it into the formal economy. 
• Consumers could either sell their gold or store it with banks, helping reduce the gold imports and thus lowering the current account deficit.
• The scheme encouraged households, trusts, and institutions in India to deposit their idle gold under GMS.
• The GMS was a revised version of the older Gold Deposit Scheme.

Scheme Components: 

1. Short-Term Bank Deposit (1-3 years)

2. Medium-Term Government Deposit (5-7 years)

3. Long-Term Government Deposit (12-15 years) 

Interest Rates:

• For Short-Term Bank Deposits, it is decided by the banks based on the prevailing international lease rates, other costs, market conditions, etc., and is borne by the banks.
• For Medium & Long-Term Government Deposits, it was decided by the Central government, in consultation with the RBI and borne by the Central government. 
• The Gold Monetization Scheme interest rate was fixed at 2.25% for medium-term bonds and at 2.5% for the long-term bonds. 

About Discontinuance of GMS

• The decision to discontinue this policy underscores the government’s ongoing efforts to refine the GMS and adapt it to the evolving financial landscape, while maintaining focus on gold’s role in the economy.
• Gold prices have surged by ₹26,530 (41.5%) to ₹90,450 per 10 grams (as of March 25, 2025), up from ₹63,920 per 10 grams on January 1, 2024.

Why did GMS not succeed?

GMS saw limited participation due to several challenges:

• Indian households were reluctant to melt ancestral and personal jewelry due to sentimental and cultural attachments.
• The lengthy procedure for testing gold and the limited number of testing centers made the process inconvenient.
• Depositors had to declare their gold holdings to earn interest, and the interest earned was taxable, discouraging participation.
• Poor promotion and limited participation from banks meant that many potential depositors were unaware of or uninterested in the scheme.