Gold bars [Representational image]. The government is proposing the next set of gold trade reforms that will treat gold as a different asset class. Creative Commons

The second Narendra Modi government will introduce sweeping reforms in gold trade including a revamp of the gold monetisation scheme (GMS) that the last government launched with much fanfare but failed to gain traction, media reports say. The proposals now in the final stages also include the formation of a gold council as a policy advisory body and framing of rules to treat gold as an asset class to facilitate more profitable investment in the precious metal.

The reforms likely to be introduced in the budget session of Parliament in July after the new government settles down in office will see discussions on the gold board. The Precious Metals Board of India Bill, 2019, is ready and will be introduced in Parliament after the new Cabinet's approval, a report in the Business Standard says.

The gold board will be set up in line with regulators such as the Securities and Exchange Board of India (Sebi). The precious metals board will formulate norms for a gold spot exchange to ensure that all gold trade above 5 gm goes through the online exchange for transparency and to track the end user.

It will finalize delivery norms with the help of the Bureau of Indian Standards (BIS) so as to bring global acceptability to gold refined in India.

The government is planning to make gold a separate asset class, the report said quoting an unidentified source. Though sovereign gold bonds are an asset class at present gold's formal acceptance as an asset class will make more reliable investment possible making it possible for the investor to receive the precious metal on maturity. Banks and financial intermediaries will have to open gold metal accounts for implementing this reform, the report says.

Banks, at present, open gold accounts in rupee terms with limited acceptability among investors. Under the current GMS, banks return rupee equivalent of the value of the gold deposited which has affected the popularity of the scheme among the general public.

As a result, many institutions like temples possessing large quantities of precious metal and even retail or high net worth individuals are not participating in the GMS. On the other hand, gold metal accounts will allow investors who buy gold digitally to ask the seller to transfer it in the GMS. This will open up new avenues to use idle gold for productive purposes, it says.

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A salesperson shows a gold ring to customers at a jewellery showroom during Dhanteras, a Hindu festival associated with Lakshmi, the goddess of wealth, in Ahmedabad, India, October 28, 2016.Reuters file

A proposed gold deposit scheme is expected to allow gold to be invested in any form with banks giving returns on it and giving back the commodity on maturity. This gold will be used for lending to jewellers who otherwise import it.

The GMS announced three-and-a-half years ago, failed to meet its objectives with just 18 tonnes of gold mobilized. The whole scheme will be revised, sources say. The commerce ministry is expected to announce the setting up of a domestic council for gold in line with the Gem Jewellery Export Promotion Council with advisory function coordinating different stakeholders.