Finance Ministry announced on Monday that inflation indexed bonds linked to consumer price index (CPI) inflation will be introduced in the next fiscal year.
Finance Ministry announced on Monday that inflation indexed bonds linked to consumer price index (CPI) inflation will be introduced in the next fiscal year. The government will introduce CPI-linked inflation-indexed bonds in FY19, said Department of Economic Affairs (DEA) Secretary Subhash Chandra Garg. He also informed that the government will slash buyback by Rs 25,000 crore for FY19. The government borrowing in the first half of the fiscal will be Rs 2.88 lakh crore, he added.
What are inflation indexed bonds?
Inflation-indexed bonds are popular the world over. These bonds provide its buyer an increased protection against the inflation in the country at that point in time. Instead of locking money in gold (an idle asset) government through these bonds wanted to encourage people to invest in them, the first time they were intorduced in 2013. Department of Economic Affairs (DEA) Secretary Subhash Chandra Garg today announced that the inflatio- indexed bonds that will be introduced in the coming fiscal will be linked to CPI (retail) inflation that is the benchmark indicator of inflation in the country. In 2013, the ruling government was struggling with twin deficit problem triggered by widening fiscal deficit and on the current account end marked by huge gold imports.
The then RBI governor Raghuram Rajan, later in the year, launched these these bonds by linking to the Wholesale Price Index or WPI — with an annual return over this benchmark. Thereafter, the Inflation-Indexed National Savings Certificates were introduced by the RBI for retail investors linking to CPI. A coupon rate of 1.5 percent yearly was offered to the investors over the inflation rate existing in the country. Inflation-indexed bonds are usually offered at a time when inflation is very high in the country.