MUMBAI, Mar 12 (Reuters): India's ambitious plan to recycle thousands of tonnes of gold lying idle in temples and households looks to have foundered on concerns over high costs and slight returns, in a blow to government hopes of cutting imports of the metal.
After 16 months, temples and households have turned over just seven tonnes of gold out of the 24,000 tonnes believed to be in private hands, two industry sources and a government official said, with almost all the gold coming from temples.
Families that hold about 80 per cent of the idle gold have largely shunned the scheme, with some four dozen government-approved centers that opened to test purity still to process a single gram of household gold, said Harshad Ajmera, president of the Indian Association of Hallmarking Centres.
"You hardly earn anything but you have to do so many things to deposit gold under the scheme. Why should I take all this pain?" said 54-year-old clerk Ganpat Shelke, who considered depositing 50 grams of gold.
The struggling scheme was launched with much fanfare by Prime Minister Narendra Modi in November 2015, with India seeking ways to stem the spending of billions of dollars on a non-essential commodity that accounted for 27 per cent of its trade deficit in the year to March, 2016.
The country is the world's second-biggest gold importer behind China, buying about 800 tonnes a year for wedding gifts, religious donations and as an investment. (For a graphic on India's gold market click tmsnrt.rs/2c1U49q)
The plan was for holders of idle gold to lodge it with banks in return for interest and cash at redemption. The government would melt the gold and auction or rent it to jewelers, reducing the need for imports.
But the scheme logistics mean the owners of the gold must shoulder the cost of testing its purity and melting it down, while the interest rate on offer of just 2.5 per cent compares with 7-8 per cent that banks offer for cash deposit rates.
"If a consumer wants to have 25 grams jewelry converted the cost of converting and purity testing takes 3-4 per cent of total value away," said Shekhar Bhandari, executive vice-president of Kotak Mahindra Bank.