Gold Bond Issuances Facing Decline
The government has reduced its target for issuing gold bonds in the financial year 2024-25 by 38% compared to the previous interim budget goal, according to a senior official. The revised target stands at Rs 18,500 crore, down from Rs 29,638 crore estimated in the interim budget and Rs 26,852 crore (revised estimate) in 2023-24.
Factors Influencing the Decision
The official, who chose to remain anonymous, cited a reassessment of various factors for the decision. These factors included investor demand, the availability of other investment products, and uncertainties surrounding the global economy, indicating changes since the interim budget in February.
Insight on Investor Behavior
Harish Galipelli, director at ILA Commodities India, pointed out that retail investors are shifting towards equities in anticipation of better returns, which has contributed to the decline in gold bond issuances. He also mentioned that there is uncertainty among investors regarding future increases in gold prices in the short-to-medium term after a recent rally. Additionally, Galipelli highlighted that savings in rural areas have been impacted by retail inflation and other factors.
Purpose of Gold Bond Schemes
The gold bond and gold monetisation schemes were introduced by the government in late 2015 to discourage the physical purchase of precious metals, reduce imports, and mitigate the negative impact on the current account deficit.
Revised Projections for Gold Collection
The gross collection through these schemes is now projected to be Rs 20,030 crore in 2024-25, compared to higher estimates in the interim budget and the previous fiscal year. The net collection is also expected to decrease, reflecting the changing trends in investor behavior.
Importance of Gold Bonds
The sovereign gold bond scheme targets investors who view gold as an investment, promoting the purchase of paper gold instead of physical gold. On the other hand, the gold monetisation scheme aims to mobilize idle gold held by households, temple trusts, and others to increase domestic supply and reduce the reliance on imports.
Monitoring Gold Bond Issuances
Gold bond issuances had initially surged during the Covid-19 pandemic but are now facing a decline, indicating a shift in investor preferences and economic conditions. These schemes play a crucial role in managing India’s trade deficit and promoting financial inclusion.
