NEW DELHI: India plans to issue gold bonds to curb imports by the world’s second-largest consumer of the metal, whose trade deficit in the past has hurt the rupee.
The Reserve Bank of India (RBI) would issue the bonds on behalf of the government to Indian residents, with purchases capped at 500 grams per person each year, the administration said in a draft proposal posted on Thursday on its website. The bonds would be linked to gold prices and have a nominal interest rate.
“The main idea is to reduce the demand for physical gold,” Prime Minister Narendra Modi’s government said in the plan, adding it wants to shift some of the estimated 300 tonnes of gold bought annually for investment to the bonds.
India was the world’s biggest gold buyer before falling behind China in 2013. The government says about 20,000 metric tonnes of gold reside in temples or hide in drawers, twice the official holdings of the US. Imports stoked a record trade shortfall in 2013, sending the rupee to an all-time low and forcing the nation to curb inward shipments of the metal.
Some of those restrictions have been eased, putting India on course to become the world’s top consumer this year.
The bonds could save $2 billion on gold imports at current prices if fully subscribed in the first year, according to Nomura Holdings. They offer a “good” alternative for gold investors as they are backed by the sovereign and pay interest, Nomura analysts Sonal Varma and Neha Saraf wrote in a note.
The amount of notes issued may not exceed the equivalent of 50 tonnes of gold in the first year, and the lower limit for the nominal interest rate may be two per cent, the government said.
Imports of the metal climbed 10.5 per cent in May from a year earlier to $2.42 billion. The rupee, down about one per cent this year, weakened 0.1 per cent to 63.8187 a dollar as of 1:34pm in Mumbai. The record low in 2013 was 68.845.
Modi is also trying to mobilise idle gold to curb imports under a plan that will allow citizens to deposit the metal with banks to earn interest.
