Rbi Offer To Buy Back 1998 Gold Bonds

On October 3, 1996, the RBI put the gold bonds 1998 on its purchase window at a price of Rs 4,408.1. One bond represents an ounce of underlying gold. If a bond holder sells the bonds back to the Reserve Bank and takes cash, the underlying gold will not go out of the RBI's coffers.

The Reserve Bank has, however, offered to buy the gold bonds at a massive discount to the prevailing market price of gold. As against a market price of Rs 4,730 on October 3 for 22 carat gold, Reserve Bank is buying the gold bonds at Rs 4,408.10. In fact the market price of standard gold is Rs 5,115 for an ounce.

 

It is pointed out that the Reserve Bank wants to keep the gold and hence the bid to buy back the bonds. Sale or pledging of gold is used as the last resort to meet the country's obligations as was done in 1991 when the country's reserves fell to a low level which could cover only two weeks of imports. It is hence felt prudent by the Reserve Bank to shore up its gold reserves.

The gold bond scheme, 1993, was introduced for three months from March 15 1993. The main objective of the scheme was to mobilise the idle gold resources of ordinary citizens to supplement the official reserves. The total subscription received was 41.12 metric tonnes of gold. The revised estimates of 1993-94 and the budget estimates of 1994-95 assumed a receipt of Rs 375 crore and Rs 1,225 crore respectively under this scheme against 1993-94 budget estimates of Rs 300 crore based on the progress and the programme of as saying and certification of the gold received.

The budget receipts of 1995-96 state that the revised estimates for 1994-95 and the budget estimates for 1995-96 asssume a receipt of Rs 1100 crore and Rs 65 crore respectively against a budget estimate of Rs 1,225 crore in 1994-95. The 1996-97 budget receipts state that the revised estimates of 1995-96 assumed a receipt of Rs 59.23 crore under this scheme against a budget estimate of 1995-96 of Rs 65 crore. Since the entire gold has already been assayed, no receipt is assumed in be for 1996-97.

However, it remains to be seen if the bond holders are willing to accept the RBI offer. It is pointed out that bond holders wanting cash urgently might opt for it. That apart, with the gold itself not being redeemable before 1998, some bondholders may accept the RBI offer as the price of gold has been sliding for a few months now.