The gold monetization scheme aims to unlock about 20,000 tons of gold worth over $800 billion lying idle in homes and temples. Under the plan, banks will collect gold for up to 15 years and pay 2.25-2.50 percent interest per year. This is higher than previous rates of around one percent. The government hopes that higher interest rates will help in mobilizing the gold as previous attempts have been unsuccessful.
“Gold is a security, it gives you earnings and now on it is going to be a part of our nation building,” Modi said.
By launching sovereign gold bonds with 2.75 percent interest, Indian authorities hope to cut the physical buying of the precious metal.
Modi has also unveiled the first Indian gold coin which is initially to be available in denominations of 5 and 10 grams.
The program wants to cut the country’s reliance on gold imports, estimated at around 1,000 tons a year.
“The government wants to reduce the reliance on gold imports over time,” an Indian finance ministry official said.
The Prime Minister said the country has overtaken China as the world’s largest gold consumer, buying 562 tons so far this year, against China’s 548 tons.
In 2013, India’s budget deficit hit a record $190 billion. The deficit was due in part to Indians spending a lot of money on gold imports. The government was forced to hike its duty on imports to a record 10 percent. Imports of gold fell to $34 billion in 2014-2015.
Indians are known for their obsession with gold, which is seen as symbol of social status and prosperity. Gold is widely used for wedding gifts, religious donations and as an investment.
“But if the temples start allowing the government to melt the gold jewelry donated by devotees, will it hurt their religious sentiments?” Thiagarajan asked. “Will gold offerings slow down in the future?”
Many traditionalists, including the boards of many of the country’s leading temples, prefer to have their gold locked up rather than circulating in the economy.
“The jewelry belongs to God. Why should the government melt it?” asked Chandan Male, 42, a businessman and devotee at the Siddhivinayak Temple. “By auctioning it, the jewelry is only circulating among the devotees.”
Indians’ love of gold dates back centuries, stemming from gold-giving rituals and gold-buying festivals. Brides are draped with gold, and gold-laden dowries are a traditional gesture that cost a life savings for many poorer families in rural India.
Many ancient temples have basement vaults that are rarely, if ever, opened.
During a dramatic court battle in 2011 over the riches in the 16th-century Sree Padmanabhaswamy Temple in the southern state of Kerala, a Supreme Court team discovered $22 billion worth of gold.
This huge treasure trove — sacks of coins, diamonds and other jewelry, gem-encrusted ceremonial garb and solid gold idols lying in cavernous cellars — was revealed after the court ordered the vaults opened in response to a petition accusing temple officials of mismanaging the wealth.
Much of the gold had been deposited by the local royal family. A popular belief that the gold lay wrapped with dozens of venomous snakes underground kept robbers away. The image of a snake engraved on the wall at the entrance of the vault fueled the popular lore.
“The myth kept the gold safe for centuries,” said Ravi Varma Raja, 74, who was appointed by the royal family as the custodian of the vault keys until the court intervened.
“I am certain that 99 percent of the people would not like it to be melted,” Raja added, reflecting how unlikely it will be for the temple to accept the government’s plan.
A few temples already have deposited small portions of their gold in banks.
In the past four years, Tirumala Tirupati Devasthanams, one of India’s richest temples in the southern state of Andhra Pradesh, has deposited more than five tons in a state-run bank in a “gold for gold” program where the goods are melted down and held and the interest is paid back to the temple in gold.
“We receive interest not in cash but in gold. Had the devotees opposed, we would not be able to do this,” said O. Balaji, the financial adviser to the temple.
Said Narendra Rane, the chairman of the Mumbai temple board: “I would not say that our gold is sitting idle.” He said the money from the gold auctions funds charity projects. The temple was waiting to see what the government’s interest rates would be before it decided whether to participate, he said.
At the Siddhivinayak Temple in Mumbai on Tuesday, thousands of worshipers waiting to pay homage to the elephant-headed god Ganesh stood in line in the heat watching curiously as the auction unfolded. There were bids on 352 gold items worth about $130,000, and 179 gold jewelry items were finally sold at the auction, bringing in $82,300 for the temple.
The wall and ceiling of the temple’s inner shrine are plated with pure gold, and the Ganesh idol is adorned with exquisite jewelry. Over the decades, devotees have made generous offerings when their special prayers were answered.
Reena Awasthi, 48, beamed, holding a gold necklace with Ganesh engravings that she bought for $1,250. She buys gold every year on this day from the shops. This year, her shopping turned out to be very special, she said.
“Somebody’s prayer was answered, some wish was granted, and they gave this in gratitude to God. It has some sanctity and is more precious,” Awasthi said.
Although some worshipers expressed doubts about the government’s new plan, others were more pragmatic.
“If the temple gold goes to nation-building and strengthening the economy, that is good karma, too,” said Aastha Desai, a 38-year old businessman.