Govt’s sovereign gold bond scheme pick up pace but it’s a long race ahead


After a dull start in November, the government’s sovereign gold bonds scheme seems to have found some favour with investors in the second phase of its roll-out this month, attracting subscription for 2,790 kg worth Rs 726 crore, according to data shared by economic affairs secretary Shaktikanta Das on Thursday, reports fe Bureau in New Delhi.

However, though the subscription volume is over three times that witnessed in November, the scheme is still far from being a runaway success, as the volume still accounts for just 0.3% of India’s annual demand of roughly 900 tonnes. Even factoring in the first tranche, the total volume of bonds sold so far would be just 0.4% of the annual consumption, and far lower than the target for the sale of bonds worth Rs 15,000 crore by the end of March.

Policymakers are impressed with the pick-up in demand for bonds, though. “Second tranche of Gold Bonds: Outcome significantly better than first tranche. Scheme picking up,” Das said in a tweet.

As many as 3.16 lakh applications for subscriptions were received this time around, compared with 62,169 in November. The first tranche of the scheme had received a subscription for 915.95 kg of gold worth Rs 246 crore. The annual interest on the bonds has been fixed at 2.75%.

Senior bullion industry executives said despite the improved performance, if certain things are not corrected soon, the scheme is unlikely to be a success to the extent envisaged by the government.

First, the decision of determining a price based on the previous five days’ average has to be made more investor-friendly, as the price difference can be huge at times. Second, the scheme must be available to investors throughout the year, and not when the government chooses to offer it. Similarly, the government needs to revisit stringent KYC norms for buying such bonds.

In fact, the government should view it as an opportunity to get its act together, as the latest uptick suggests underlying demand for bonds remains strong, said the executives.
The second tranche of gold bond scheme, which opened for subscription on January 18, closed on January 22. The bonds would be allotted on February 8.

The gold bonds are issued in denominations of 5 grams, 10 grams, 50 grams and 100 grams for a term of five to seven years with a rate of interest to be calculated on the value of the metal at the time of investment. The scheme has an annual limit of 500 grams per investor.

Prime Minister Narendra Modi had on November 5 launched gold schemes to discourage investors from buying physical gold and affecting trade balance. During the April-December period of this fiscal, gold imports rose to $26.45 billion, compared with $25.85 billion a year earlier.