Gold Monetisation and Spectrum Sharing: What’s in it for Us?
Government has announced gold monetisation scheme with an intent to bring down its import and save foreign exchange.
It is too much of a coincidence that a day after a meeting with corporate giants, the government went overboard with making important announcements. Nonetheless, the key point is that the government has stepped on the right gear.
Two of the decisions made are crucial for the economy, and can have a far reaching impact. We shall look at the two decisions of gold monetisation, along with gold bonds and telecom spectrum trading.
Gold Monetisation and Sovereign Gold Bonds
The principle behind announcing both gold monetisation and a sovereign gold bond scheme is to capitalise on Indians’ love for the precious metal.
The gold monetisation scheme allows households, as well as temples to deposit their gold and earn interest on it. Both Indian households (collectively) and temples are sitting on a mountain of gold. Households have blocked a sizeable portion of their wealth in gold and are not able to earn anything from it apart from when they sell it. Depositing this gold gives them an opportunity to continue to own as well as earn something out of this asset.
It is said that nearly 20,000 tonnes of gold is held by households and temples. The deposited gold will then be given to jewellers who will melt and reuse it.
This is a win-win scheme for the government as well since valuable foreign exchange will be saved. India imported around 930 tonnes of gold in the 2015 financial year at a cost of $34.32 billion amounting for around 7% of all imports. Further, the locked value in the asset will be released and the money will be put to productive use.
Gold bonds will be issued to those investors who would like to purchase or invest in gold. Rather than physically buying gold, they would be given gold bond certificates which can later be encashed either for money or gold. Thus, the gold that is bought will start earning interest from the first day, rather than lying idle if one prefers physically buying gold.
In order to encourage smaller buyers in the gold bond scheme, the government has allowed purchase of bonds in denominations of 5, 10, 50, and 100 grams. The duration of these bonds is for a minimum of five to seven years. For the investor, or buyer, it is safer to buy bonds rather than keep gold at home.
For the government, the benefit is that the demand for physical gold will come down, meaning lower imports and saving of foreign exchange.
The government must be applauded for launching the scheme which will reduce stress on the economy, as well as putting locked-up savings to productive use.
Keeping up with Reform Agenda
- Principle behind announcing both gold monetisation and a sovereign gold bond scheme is to capitalise on Indians’ love for the precious metal
- India imported around 930 tonnes of gold in the 2015 financial year at a cost of $34.32 billion
- Allowing companies to trade excess spectrum is expected to bring in better service across the country
- Spectrum sharing expected to increase healthy competition in the sector and reduce cost for the subscriber
- After having failed to clear the GST and Land Acquisition Bill, these announcements have revived faith in the government
Chances are that your call drops will reduce with the government’s decision to allow spectrum trading. The government has allowed trading airwaves, if they are acquired through an auction since 2010, or if the operator has paid the market value to acquire them. Operators are allowed to sell spectrum after two years of ownership.
The move has been touted by industry players as a game changer. Many telecom companies are non-operational, but still continue to own spectrum. There are cases where companies are not fully utilising their allotted spectrum. On the other hand, there are players who are not able to provide full service on account of lack of spectrum.
Allowing companies to trade excess spectrum is expected to bring in better service across the country.
Since merger and acquisitions norms in the telecom sector are cumbersome, analysts are of the opinion that spectrum sharing is the next best thing to consolidation. Spectrum sharing is also expected to increase healthy competition in the sector and reduce cost for the subscriber.
Reports say that within less than a day of the announcement of spectrum trading, the Ambani brothers are set to sign a spectrum sharing-cum-trading agreement. One impact of the announcement is immediately visible.
Much Needed Measures
Industry and the markets were both losing confidence on the ability of the government to deliver, especially after it was not able to clear the Land Acquisition Bill and GST in the monsoon session of Parliament. However, the two announcements, which were cleared through an executive order, have revived faith in the government.
(The writer is a Mumbai-based market analyst)
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