 | « Back to article | Print this article |
The government does not seem keen on issuing fresh gold bonds given the overall cost and rising gold prices.
The government would take a decision on issuing fresh sovereign gold bonds (SGBs) based on the need and assessment of market conditions, said sources.
Experts, however, feel that the government does not seem keen on issuing fresh gold bonds given the overall cost and rising gold prices.
In the Union Budget, presented by Finance Minister Nirmala Sitharaman, the government had set a target of issuance of Rs 18,500 crore (Rs 185 billion) of SGBs.
"A decision would be taken based on need and assessment of market conditions. If we borrow, it will be to that extent. If we don't, we would not have borrowed to that extent," the source said.
Government sources had earlier indicated that a call on whether to continue the SGB scheme would be taken in September, coinciding with the borrowing calendar discussions of the Reserve Bank of India.
As expected, the finance ministry had on Thursday announced its plans to borrow Rs 6.61 trillion from the market through 21 weekly auctions in the second half of this financial year.
The borrowing is around 47 per cent of the gross market borrowing target of Rs 14.01 trillion.
However, the borrowing calendar didn't give any clarity on SGB issuance in the second half of FY25. SGBs issuance is done outside the government's borrowing calendar.
SGB schemes are government securities denominated in grams of gold. They are substitutes for physical gold.
Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity.
"The government not issuing SGBs may be a temporary thing. It does not make economic sense at present given the overall cost and rising gold prices," said Madan Sabnavis, chief economist, Bank of Baroda.
"Also it appears that physical gold imports have not come down, which was the goal," Sabnavis added.
"There is no macroeconomic compulsion to keep issuing gold bonds since India's current account deficit has been well within comfortable limits in recent years," said Vivek Kumar, economist, QuantEco Research.
"With sharp escalation in the international price of gold in the last 6 years, gold bonds have turned out to be one of the costliest avenues for funding the fiscal deficit," added Kumar.
This, Kumar said, could be the reason why the government may have quietly abandoned the scheme for this financial year.
"The same could be considered at a more opportune time in the future," Kumar added.
SGBs are issued to resident Indian entities by the RBI on behalf of the central government.
The government launched the sovereign gold bond scheme in November 2015 with an objective to reduce the demand for physical gold.
It was also to shift a part of the domestic savings, used for purchase of gold, to financial savings.
The government offers SGBs in tranches for limited periods.
Feature Presentation: Ashish Narsale/Rediff.com
