UPSC Mains 2015 GS Paper 3 Q7: model answer
Craze for gold in Indians has led to a surge in import of gold in recent years and put pressure on balance of payments and external value of rupee. In view of this, examine the merits of the Gold Monetization Scheme.
What the question wants
Examine the merits of the Gold Monetisation Scheme against the background of heavy gold imports straining the balance of payments and the rupee.
How to structure it
Problem, then merits, then limits.
- The problem
- The scheme
- Merits
- Limitations
- Way forward
How to think it through
In 2012–13 gold imports were about $54 billion and the current account deficit hit 4.8% of GDP. GMS (2015) lets households deposit idle gold with banks for interest. Merits: cuts imports, mobilises idle gold, supplies jewellers. Weak response: collections stayed small; the medium- and long-term parts were stopped in March 2025.
Model answer
In 2012–13 India imported gold worth about $54 billion, and the current account deficit touched a record 4.8% of GDP. Households and temples hold an estimated 20,000–25,000 tonnes of gold that earns nothing. The Gold Monetisation Scheme (2015) tried to put this idle metal to work.
The scheme
Individuals and institutions deposit gold (minimum 10 grams) with banks for short, medium or long terms and earn interest. Banks can lend it to jewellers or auction it. Sovereign Gold Bonds and an Indian Gold Coin were launched alongside.
Merits
- Fewer imports: domestic gold recycled to jewellers reduces the import bill and the pressure on the rupee.
- Return on idle assets: households earn interest and save on storage and locker costs.
- Financialisation of savings: it moves a cultural asset into the banking system.
- Raw material for industry: jewellers get gold loans without importing.
Limitations
- Emotional value: families will not melt heirloom jewellery.
- Low interest (under 2.5%) and fears about purity testing and tax scrutiny.
- Thin response: collections stayed a fraction of stocks; the medium- and long-term deposit windows were discontinued from 26 March 2025.
Way forward
More assaying centres, better rates, temple trusts as anchor depositors, and financial literacy can revive the idea.
The merit of GMS lies less in what it collected than in the shift it asked for: treating gold as savings, not as a locker.
Draw: A flow diagram: household gold → assay centre → bank → jeweller / RBI reserves.
Keywords, cases and data to drop in
CAD 4.8% (2012–13), taper tantrum, idle gold, GMS 2015, Sovereign Gold Bonds, hallmarking, assaying centres, financialisation of savings.
Where most answers lose marks
- Writing only merits. 'Examine' needs the limits, and the 2025 discontinuation shows you are current.
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Question text as printed in the official UPSC Civil Services (Main) question paper. The model answer is original Battle IAS work; use it to learn structure, not to memorise.
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