UPSC Prelims 2016 · Question 96 of 98
UPSC Prelims 2016 question on Sovereign Gold Bond Monetisation Purpose
- ExamUPSC CSE
- Year2016
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeDirect
What is/are the purpose/purposes of the Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetization Scheme’?
Show answer
Answer: D. Both 1 and 3
Verdict
The answer is that both schemes aim to bring idle household gold into the economy and to reduce India's dependence on gold imports. Promoting foreign investment in the jewellery sector is not their purpose.
Analysis
The Government launched the Sovereign Gold Bond, Gold Monetisation and Indian Gold Coin schemes together to reduce physical demand for gold and to draw out the very large stock of the metal lying idle with households. The Sovereign Gold Bond offers a paper alternative to buying physical gold, and the Gold Monetisation Scheme lets holders deposit gold and earn interest so that it re enters the financial system. Both effects reduce fresh import demand, which is the balance of payments objective. Foreign direct investment in the jewellery trade is a separate policy matter and formed no part of these schemes.
Source
The Hindu column on the three new gold schemes.
How to crack it
Trace the macroeconomic problem the schemes were built to solve, which is that gold imports were a major contributor to the current account deficit while enormous quantities sat unused in households. Any purpose that reduces imports or mobilises the idle stock fits; anything that increases activity in the gold trade works against the objective. Reasoning from the problem rather than the scheme document answers every question in this family.