India issues draft outline to sovereign gold bond scheme

By Paul Ploumis 25 Jun 2015 Last updated at 08:34:09 GMT

NEW DELHI (Scrap Monster): The Indian government has issued a draft outline to the proposed gold-linked bond scheme.

The draft outline emphasizes government’s efforts to reduce the country’s bullion imports, thereby keeping the trade deficit under check. The proposed sovereign bond linked to international bullion prices is expected to reduce the country’s over-dependence on gold imports. As per the draft, Reserve Bank of India (RBI) will issue bonds for the government, carrying a minimum interest rate of 2%. It encourages customers to invest in ‘paper gold’ rather than ‘physical gold’. The proposed 2% is the lower limit of rate, but actual interest rate will be linked with international gold-borrowing rates and will be succumbed to variations as it is ‘market-determined’.

According to the draft outline, the sovereign bonds will be issued in denominations of 2, 5, 10 grams and other sizes of gold. The minimum term of these bonds would be five to seven years. In order to ensure widespread access to the scheme, the government intends to launch the bonds through post offices, brokers and agents. The draft also mentions that the bonds will attract capital gains tax similar to those imposed while purchasing physical gold. In total, bonds worth INR 135 billion ($2.12 billion) will be issued.

The government further stated that the draft is open to public comments until July 2nd. The public comments received until that date would be considered before the final plan is announced. The announcement of the version of the sovereign bond scheme is expected by end-July.

Earlier, during the budget speech for Union Budget 2015-2016, the country’s Finance Ministry had proposed launch of gold deposit scheme and gold-linked bond scheme. The gold deposit scheme is aimed to mobilize the idle gold lying with Indian households and institutions. The sovereign gold bond scheme is being marketed as an alternative to purchasing metal gold.