FY25 gold bond float target may be cut again to below ₹10,000 cr
Thu Oct 10 2024
New Delhi: The government will likely cut its gold bond float target for 2024-25 drastically again to less than ₹10,000 crore, as it finds current market conditions unfavourable and the mopup of funds through this route costly, a senior finance ministry official said. The government had in July slashed this target to ₹18,500 crore from the interim budget level of ₹29,638 crore, ET had reported on July 26.
"It will be cut again, possibly to well below ₹10,000 crore. The precise size of the issuance would be finalised in due course," the official told ET.
"There is also this question as to whether such bond issuances are really required at the moment, given the high cost of borrowing through such instruments," he added.
The government had garnered a record ₹28,240 crore (revised estimate) in 2023-24 through gold bonds. While finalising its market borrowing calendar for the second half of this fiscal, the finance ministry last month decided to assess market conditions and requirements afresh before floating such bonds this fiscal.
A senior official had then said that it's not a social security scheme that the government must support it constantly.
Holders of such bonds, denominated in grams of gold, get a 2.5% annual interest and an exemption from capital gains tax upon maturity, on top of any appreciation in the precious metal rates.
While these benefits have made the gold bonds attractive for investors in recent years, they have also pushed up the government's cost of fund mop-up through such papers above its usual market borrowing rates, the official said. This has prompted the government to undertake a cost-benefit analysis.
Gold prices have shot up by 30% over the past one year and almost 5% in the last one month to Rs 74,834 per 10 grams (24 karat), according to the India Bullion and Jewellers Association data.
The spike is caused by investors' flight to safe-haven assets like gold in the wake of the persistent geopolitical tensions, especially after the Israel-Hamas war, and sticky global inflation, experts said. The sovereign gold bond scheme is targeted at those looking at gold as an investment-helping them buy "paper gold" instead of physical gold.
The government had launched the scheme in late 2015 to discourage physical purchases of the precious metal and trim imports to reduce their debilitating effect on the current account deficit.
Source: https://economictimes.indiatimes.com/