The budget is expected to call for deposits of gold with the government for a period of seven to ten years. No questions will be asked on the source of gold. Certificates of deposit would be issued which are likely to be allowed to be traded in the fledgling derivatives market.

The certificates, which will be valued at going market prices, will earn a nominal rate of interest of around 2 to 3 per cent per annum.

The certificates can be encashed at maturity at the going market price. Alternatively, the government will return the exact quantity of gold deposited at the beginning.

Clearly, the aim of the scheme is to provide an amnesty scheme for those who have converted their unaccounted funds into gold. The attractiveness of the scheme would lie in the fact that no taxes will be levied on the gold that is deposited with the government, except perhaps a tax on the nominal interest accruals on the deposits.

Another advantage for subscribers of the scheme would be the immediate liquidity that will be available by hawking off the certificates of deposit in the secondary market.

The finance ministry is working out the likely tax incidence on monetary accruals when the certificates of deposits are flogged in the market. The idea is evolve an incentive package that will attract people to the scheme.

The government stands to gain too, out of the scheme. The gold and foreign exchange reserves of the county will stand boosted to the extent that the scheme is successful. The ministry is also looking at the prospect of productively utilising the incremental gold deposit abroad and generating an income stream out of it.

The extent of gold to be mobilised through such an amnesty scheme would depend on how much gold is stored as `stock' and how much as jewellery. It is the former which the ministry wants to tap. The estimates vary from anywhere between 1,500 tonnes to 2,500 tonnes.

In a parallel move, the ministry is trying to expedite the introduction of derivatives trading in gold linked instruments before the announcement of an amnesty scheme.

There seems to be some ambiguity on who should control derivatives trading in gold. The RBI is keen to keep all gold related transactions under its ambit. The government, however, wants to ensure that trading in gold derivatives, like in other `commodities', should be handled by the Forwards Market Commission.

The turf war is expected to intensify in the weeks ahead, even as the government moves fast to finalise a trading pattern for gold derivatives--a must for the success of an amnesty scheme.