Govt weighs sovereign gold bonds to keep tabs on imports

The government is planning to issue sovereign gold bonds linked to the price of the yellow metal, a proposal aimed at reducing demand for gold and control trade deficit.
In a draft outline, it said the sovereign gold bond scheme would help in shifting part of the estimated 300 tonnes of physical bars and coins purchased every year for investment into 'demat' gold bonds.
The bonds will be issued by RBI on behalf of the government.
"Issuing agency will need to pay distribution costs and a sales commission to the intermediate channels, to be reimbursed by the government," it added.

The issuance will be restricted to resident Indian entities. The cap on bonds that may be bought by an entity will be "at a suitable level", not more than 500 grams per person per year.
The outline also stated that the government will issue bonds with a nominal rate of interest, which will be linked to international rate for gold borrowing.

"An indicative lower limit of 2 per cent may be given, but the actual rate will have to be market determined," it said, adding that "on maturity, the investor receives the equivalent of the face value of gold in rupee terms".

The rate of interest on the bonds will be payable in terms of grams of gold and the interest will be calculated on 10,000 at a certain per cent, say 2 per cent or 3 per cent, the draft said.
These bonds will be issued in 2, 5, 10 grams of gold or other denominations; the tenor could be for a minimum of 5-7 years so that it would protect investors from medium-term volatility in gold prices.
The government has invited the public to comment on the plan by July 2.
Earlier, in his Budget speech, Finance Minister Arun Jaitley had said: "Though stocks of gold in India are estimated to be over 20,000 tonnes, most of this gold is neither traded, nor monetised. I propose to... Develop an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold."

India, the world's largest consumer of gold, imports around 800-900 tonnes of gold annually, the second-biggest item after oil.
Gold imports grew 10.47 per cent to USD 2.42 billion in May. During April-May, the first two months of the 2015-16 fiscal, trade deficit stood at USD 21.39 billion as against USD 21.32 billion in the same period last fiscal.