This refers to the report "Govt proposes to raise Rs 13,500 cr by sovereign gold bonds" (June 19). This is one of the three gold-related schemes that was announced in the Union Budget by Finance Minister Arun Jaitley. The other two being a gold deposit scheme to be operationalised through banks and the issue of indigenous gold coins. While the other two schemes have 'gold content', the Sovereign Gold Bonds Scheme (SGBS) on the face of it gives the impression that it will only re-designate a part of the government's market borrowing programmes as SGBS.
For the investor, SGBS offers all the positives of investing in solid gold, plus an incentive by way of interest. Still, as there is no underlying gold supporting the 'gold bonds', as in the case of gold exchange-traded funds, the scheme will only serve as a conduit for government borrowing from the public.
Though there is nothing wrong in trying out a new instrument, the absence of gold-backing might impact the credibility of the scheme. One way out could be a promise to increase the gold component in the country's gold reserves to the extent funds are mobilised through SGBS. For that purpose, the scheme may have to be delinked from the government's market borrowing programme and implemented directly by the Reserve Bank of India.
M G Warrier Mumbai
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