Editorial: Golden opportunity gone

By: |
January 20, 2016 12:26 AM

Gold bonds a dud without market pricing & liquidity

With Indians likely to import $33.5 billion of gold in FY16—a tad lower than $34.3 billion in FY15, though far lower than the high of $56.6 billion in FY12—it is not surprising the government came out with a gold bond scheme last year. But with the first tranche from November 5-20 last year mobilising just Rs 246 crore for 917 kg of the metal—a fraction of 614 tonnes of gold that the country imported from January to September last year—the bond was a damp squib. And, with the government not addressing the scheme’s main faults, chances are the second tranche—on till January 22—will also be a failure.

Since the scheme is meant to be a substitute for gold, by definition it has to mimic all the properties of gold—which means it has to be fully liquid and it has to provide anonymity to the buyer. Though there is a KYC requirement for buying physical gold over a certain limit, this is observed more in the breach—by insisting on KYC, the government has limited the attractiveness of gold bonds. And since, in any case, buying gold bonds doesn’t make the money white—it remains black till it is declared in your tax returns—why insist on a KYC for buyers of the bonds? Two, the scheme has to be available throughout the year, not just on the dates the government chooses—this means any investor who wants to buy gold during a slump cannot do so if the bond window is not open; ditto for sellers. Indeed, the practice of fixing a price based on the previous 5-days’ average also defeats the purpose of the bond since the price difference can be quite large. In the first tranche it was fixed at Rs 2,684 per gram—for 99.9% purity—which was higher than the price of the metal at Rs 2,623 per gram. If the scheme has to work, the government needs to resolve its fundamental flaws; it doesn’t help that at 1%, the commission on the bond is too low to incentivise sellers to aggressively push the product.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Agri-reforms: LEAD farmers, don’t mislead them
2The farm reforms must be celebrated
3Don’t burden schools; Delhi HC order on digital-gap misses some ground realities