New gold bond scheme may draw more investors

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Mains Paper 3: Economy | Mobilization of resources

 The following things are important from UPSC perspective:

Prelims level: Sovereign Gold Bond (SGB) Scheme

Mains level: Discuss the merits and demerits of gold bond scheme of the government of India


News

Context

  1. The Government announced a few changes in its Sovereign Gold Bond (SGB) Scheme recently.
  2. The primary change was the increase in the limit to 4 kg (from 0.5kg) for individuals, HUF and 20 kg for Trusts.

Why?

  • To encourage high net-worth individuals, rich farmers as well as trusts to invest in these bonds.

Factor diminishing the attractiveness of the SGB ?

  • Its price being pegged to a 10% import duty, and any reduction in the import duty by the Government in the subsequent period would likely inflict severe loss of value to those who have already invested

How to overcome?

  1. The Government should fix the pricing of SGB at bullion rates exclusive of import duty and IGST
  2. In case of physical delivery of bullion against SGB at a later date, import duty and IGST should be levied at the point of delivery.This will make the scheme much more attractive to the general public, thereby enabling substitution of expensive imports that impact the current account deficit (CAD).

Way forward?

  • While the Government introduced these bonds to help reduce India’s over dependence on gold imports, the move was also aimed at changing the habits of Indians from saving in physical form of gold to a paper form with Sovereign backing
  • Further, offering gold loan against Sovereign Gold Bonds would help popularise the product from a consumer angle.

Back2basics

Sovereign Gold Bonds (SGB) scheme

 Refer: Civilsdaily 

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