Mumbai
The Modi government's gold schemes are expected to do better than previous initiatives, especially among rural areas where a large portion of gold demand comes from, a study said.
Prime Minister Narendra Modi last week launched three ambitious schemes to reduce the physical demand for gold and fish out 20,000 tonnes of the precious metal worth $800 billion lying idle with households.
Indians directly or indirectly hold an estimated 22,000 tonnes of gold ($800 billion or 39 per cent of Indian GDP).
The Modi government has announced plans to facilitate deposit of gold as well as a gold bond, to hopefully monetise it into more productive use and also curtail imports.
The level of interest rates, scale of demand or success and whether government gold liabilities are hedged may determine impact on economy.
If the popular response is in line with the survey and those 'very willing' deposited 10 per cent of their gold over five years, imports and the current account deficit (CAD) could be reduced by an average 0.2 percentage points of GDP per year.
Better use of the gold stock and the direction of funds raised from auctioned gold deposits towards investment could improve growth - although the success of the scheme would have to be far beyond what seems likely, to have a visible impact on trend real GDP growth.
As sensitivity, 1 per cent of GDP switch away from gold can potentially add 0.2 per cent to trend GDP growth, it said.
If the above schemes reduce effective demand of gold over the long-term (in the case where deposits are redeemed in cash), it can possibly increase flow of savings into equity markets. Of course, rolling returns on gold vs other asset classes will also play a key role, it added.
